<PAGE>
As filed with the Securities and Exchange Commission on August 28, 1998
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM SB-2
Registration Statement
Under the
Securities Act of 1933
--------------------------
MUSE TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
Delaware 7373 85-0437001
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
MUSE TECHNOLOGIES, INC. Curtiz J. Gangi
1601 Randolph, SE, Suite 210 President
Albuquerque, NM 87106 Muse Technologies, Inc.
(505) 843-6873 1601 Randolph, SE, Suite 210
(Name, address and telephone number of Albuquerque, NM 87106
principal executive offices and principal (505) 843-6873
place of business) (Name, address and telephone number
of agent for service)
------------------------------------
Copies to:
Neil S. Belloff, Esq. Asher S. Levitsky P.C.
Proskauer Rose LLP Esanu Katsky Korins & Siger, LLP
1585 Broadway 605 Third Avenue
New York, NY 10036 New York, NY 10158
(212) 969-3000 (212) 953-6000
------------------------------------
Approximate Date of Proposed Sale to the Public: As soon as
practicable after the registration statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. |X|
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities to Amount to be Offering Price Aggregate Registration
be Registered Registered Per Unit (2) Offering Price Fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, consisting of one share of 1,380,000 (1) $8.00 $11,040,000 $3,256.80
Common Stock, par value $.015
("Common Stock"), one warrant
(a "Warrant") entitling the holder to
purchase one-half share of Common Stock
Common Stock includable in Units 1,380,000 (1) (3) (3) (3)
Warrants includable in Units 690,000 (1) (3) (3) (3)
Common Stock issuable upon 690,000 (1) $9.60 $6,624,000 $1,954.08
exercise of Warrants includable in
Units
Common Stock offered by Selling 423,881 $8.00 $3,391,048 $1,000.36
Securityholders
Warrants offered by Selling 423,881 $.50 $211,940 $62.52
Securityholders
Common Stock issuable upon 423,881 $9.60 $4,069,257.60 $1,200.43
exercise of Warrants offered by
Selling Securityholders
Underwriter's Unit Purchase Option 120,000 $.00083 $100 $.03
to purchase Units (4)
Units issuable upon exercise of 120,000 $9.60 $1,152,000 $339.84
Underwriter's Unit Purchase Option
(5)
Common Stock includable in 120,000 (3) (3) (3)
Underwriter's Unit Purchase Option
Warrants includable in Underwriter's 60,000 (3) (3) (3)
Unit Purchase Option
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities to Amount to be Offering Price Aggregate Registration
be Registered Registered Per Unit (2) Offering Price Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock issuable upon 60,000 $9.60 $576,000 $169.92
exercise of Warrants includable in
Underwriter's Unit Purchase Option
Total Registration Fee (6) $7,984.00
===========================================================================================================================
</TABLE>
(1) Includes 180,000 Units issuable upon exercise of the Underwriter's
over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(3) In accordance with Rule 457, no separate registration fee is required.
(4) To be issued to the Underwriter in this Offering.
(5) Issuable upon exercise of the Underwriter's Unit Purchase Option at an
assumed price of 120% of the initial public offering price.
(6) Pursuant to Rule 416, this registration statement also covers such
indeterminable additional shares as may become issuable as a result of
anti-dilution adjustments in accordance with the terms of the Warrants and
Underwriter's Unit Purchase Option. Total registration fee is rounded up to
the nearest whole dollar.
------------------------------------
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
EXPLANATORY NOTE
This registration statement contains two prospectuses covering the
registration of (i) 1,380,000 units, including units to cover overallotments
(the "Units"), consisting of 1,380,000 shares of common stock, $.015 par value
per share (the "Common Stock"), of Muse Technologies, Inc., a Delaware
corporation (the "Company"), and 690,000 redeemable Class A Common Stock
Purchase Warrants (the "Warrants") to purchase 690,000 shares of Common Stock,
for sale as Units by the Company in an underwritten public offering (the
"Offering") and (ii) an additional 423,881 shares of Common Stock and 423,881
Warrants for sale by the holders thereof (the "Selling Securityholders"). The
Warrants offered by the Selling Securityholders are being issued upon the
automatic conversion of existing warrants into Warrants on the effective date of
this registration statement. Following the Prospectus for the Offering are
certain pages of the Prospectus relating solely to the Selling Securityholders,
including alternate front and back cover pages and an alternate section entitled
"Sales by Selling Securityholders." All other sections of the Prospectus for the
Offering are to be used in the Prospectus relating to the Selling
Securityholders, except "Underwriting."
<PAGE>
Muse Technologies, Inc.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item
No. Caption in Form SB-2 Location in Prospectus
- --- -------------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus........................................... Outside Front Cover Page.
2. Inside Front and Outside Back Cover
Pages of Prospectus.................................. Inside Front and Outside Back Cover
Pages; Additional Information
3. Summary Information and Risk
Factors.............................................. Prospectus Summary; Risk Factors.
4. Use of Proceeds...................................... Use of Proceeds.
5. Determination of Offering Price...................... Underwriting.
6. Dilution............................................. Dilution.
7. Selling Securityholders.............................. Sales By Selling Securityholders
8. Plan of Distribution................................. Cover Page; Underwriting.
9. Legal Proceedings.................................... Business--Legal Proceedings.
10. Directors, Executive Officers, Promoters
and Control Persons.................................. Management.
11. Security Ownership of Certain Beneficial
Owners and Management................................ Principal Stockholders.
12. Description of Securities............................ Description of Securities;
Underwriting.
13. Interest of Named Experts and
Counsel.............................................. Legal Matters; Experts.
14. Disclosure of Commission Position on
Indemnification for Securities Act Management--Personal Liability
Liabilities.......................................... and Indemnification of Directors.
15. Organization Within Last Five Years.................. Prospectus Summary.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item
No. Caption in Form SB-2 Location in Prospectus
- --- -------------------- ----------------------
<S> <C> <C>
16. Description of Business.............................. Prospectus Summary; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; and Financial Statements.
17. Management's Discussion and Analysis Management's Discussion and
or Plan of Operation................................. Analysis of Financial Condition and
Results of Operations.
18. Description of Property.............................. Business--Facilities.
19. Certain Relationships and Related Certain Relationships and Related
Transactions......................................... Transactions.
20. Market For Common Equity and Related
Stockholder Matters.................................. Shares Eligible for Future Sale.
21. Executive Compensation............................... Management--Executive
Compensation.
22. Financial Statements................................. Financial Statements.
23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosures................................ None.
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
PRELIMINARY PROSPECTUS DATED ________ __, 1998
SUBJECT TO COMPLETION
PROSPECTUS
[LOGO]
1,200,000 Units
Muse Technologies, Inc.
Consisting of 1,200,000 Shares of Common Stock and
600,000 Class A Redeemable Common Stock Purchase Warrants
Muse Technologies, Inc. (the "Company") is offering 1,200,000 units
(the "Units"), consisting of 1,200,000 shares of Common Stock, par value $.015
per share (the "Common Stock"), and 600,000 Class A Redeemable Common Stock
Purchase Warrants (the "Warrants"). Each Warrant entitles the holder to
purchase one share of Common Stock at an exercise price of $9.60 per share,
subject to adjustment and subject to prior redemption by the Company, until
____, 2003 ( the "Expiration Date"). The shares of Common Stock and Warrants
comprising the Units are separately transferrable immediately upon issuance
and will not trade as a Unit. The Warrants are redeemable by the Company at a
redemption price of $.01 per Warrant, upon at least 30 days' prior written
notice, during the period commencing one year from the date of this
Prospectus, or earlier with the consent of HD Brous & Co., Inc. (the
"Underwriter"), and ending on _______________, 2003, provided that the average
closing price of the Common Stock is at least $12.00 per share, subject to
adjustment, for the twenty day period ending not earlier than five days prior
to the date on which the Warrants are called for redemption. See "Description
of Securities -- Class A Redeemable Common Stock Purchase Warrants."
Prior to this Offering, there has been no public market for the
Common Stock or the Warrants, and there can be no assurance that any such
market will develop, or if developed, will be maintained. It is anticipated
that the Common Stock and Warrants will be quoted on the Nasdaq SmallCap
Market under the symbols "MUZE" and "MUZEW", respectively.
The initial public offering price and composition of the Units and
the terms of the Warrants have been determined by negotiations between the
Company and the Underwriter and does not necessarily relate to the Company's
book value, net worth, financial condition or other established criteria of
value. See "Underwriting" for information about factors considered in
determining the initial public offering price.
------------------------------------
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE
OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK
FACTORS," BEGINNING ON PAGE 9, AND "DILUTION."
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
Underwriting Discounts Proceeds to
Price to Public and Commissions (1) Company (2)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $8.00 $0.80 $7.20
Total (3) $9,600,000 $960,000 $8,640,000
========================================================================================================
</TABLE>
(1) Excludes additional compensation to be received by the Underwriter in the
form of (i) a non-accountable expense allowance of 3% of the gross proceeds
of this Offering, for a total of $288,000 ($331,200 if the Underwriter's
over-allotment option is exercised in full); and (ii) options to purchase
up to 120,000 Units at a price equal to $9.60 per Unit, exercisable over a
four-year period commencing one year from the date of this Prospectus (the
"Underwriter's Unit Purchase Option"). The Company has also agreed to
indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company (including the
Underwriter's non-accountable expense allowance) which are estimated to be
approximately $655,000.
(3) The Company has granted the Underwriter an option exercisable within 45
days after the date of this Prospectus, to purchase up to an additional
180,000 Units on the same terms and conditions as the Units offered hereby
solely to cover over-allotments, if any. If the over-allotment option is
exercised in full, total "Price to Public," "Underwriting Discounts and
Commissions" and "Proceeds to Company" will be $11,040,000, $1,104,000 and
$9,936,000, respectively.
------------------------------------
The registration statement of which this Prospectus is a part also
relates to the sale by certain selling securityholders (the "Selling
Securityholders"), commencing twelve months from the date of this Prospectus,
or earlier with the consent of the Underwriter, of an aggregate of 423,881
shares of Common Stock and 423,881 Warrants. See "Sales by Selling
Securityholders." Such securities offered by the Selling Securityholders are
not part of the underwritten offering of Units being made by the Underwriter.
The Units are being offered on a "firm commitment" basis, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right to reject an order in whole or
in part. It is expected that delivery of the certificates representing the
Common Stock and Warrants comprising the Units will be made against payment
therefor at the offices of the Underwriter at 40 Cuttermill Road, Great Neck,
New York 11021 on , 1998.
------------------------------------
HD Brous & Co., Inc.
___________________, 1998
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
A SIGNIFICANT NUMBER OF UNITS MAY BE SOLD TO CUSTOMERS OF THE
UNDERWRITER. SUCH CUSTOMERS MAY SUBSEQUENTLY ENGAGE IN THE SALE OR PURCHASE OF
THE COMMON STOCK AND/OR WARRANTS THROUGH OR WITH THE UNDERWRITER. ALTHOUGH IT
HAS NO OBLIGATION TO DO SO, THE UNDERWRITER MAY BECOME A MARKET MAKER AND
OTHERWISE EFFECT TRANSACTIONS IN THE COMMON STOCK AND/OR WARRANTS, AND, IF THE
UNDERWRITER PARTICIPATES IN SUCH MARKET, IT MAY BE A DOMINATING INFLUENCE IN
THE TRADING OF SUCH SECURITIES. THE PRICES AND THE LIQUIDITY OF SUCH
SECURITIES MAY BE SIGNIFICANTLY AFFECTED BY THE DEGREE, IF ANY, OF THE
PARTICIPATION OF THE UNDERWRITER IN SUCH MARKET, SHOULD A MARKET DEVELOP.
Upon consummation of this Offering, the Company will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and, in accordance therewith, will file reports, proxy statements and
other information with the Securities and Exchange Commission. See "Additional
Information."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Unless otherwise indicated, the
information in this Prospectus assumes that the Warrants, outstanding options
and warrants, the Underwriter's Unit Purchase Option and the Underwriter's
over-allotment option are not exercised. All share and per share information
reflects a 1-for-3.04 reverse stock split effective as of March 5, 1998.
This Prospectus contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of
management as well as assumptions made by, and information currently available
to, the Company. When used in this Prospectus, the words "anticipate,"
"believe," "estimate," "expect," "will," "could," "may" and similar
expressions, are intended to identify forward-looking statements, but the
absence of any such words does not mean that the statement is not
forward-looking. Such statements reflect the current views of management with
respect to future events and are subject to certain risks, uncertainties and
assumptions, including those described under "Risk Factors" and elsewhere in
this Prospectus. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein. In addition to the other
information in this Prospectus, the above factors should be carefully
considered in evaluating the Company and its business and before purchasing
the securities offered hereby.
THE COMPANY
Muse Technologies, Inc. (the "Company") has developed and commenced
marketing several software products designed to enhance the user's ability to
understand and analyze data and information and to provide solutions to
complex data integration and data management problems encountered by
scientists, engineers and other computing professionals. The Company believes
that "MuSE(TM)," its core software product, represents a new approach to
computer interaction since it permits the integration of various types of data
from multiple sources without affecting the integrity of such data and the
presentation of data in a multisensory environment to enhance the user's
ability to analyze and understand such data. MuSE can be used with
different computing platforms and different physical or logical input and
output devices. The multisensory capabilities of MuSE enables the user to
present information in real time using visual, auditory, tactile and other
perceptual tools.
The Company has also developed a proprietary software product,
"Continuum(TM)," designed for multiuser, real-time collaboration within the
MuSE environment. Continuum permits multiple users to work and interact
with each other within a common environment and to analyze and manipulate the
same data independent from other users in a parallel private environment.
Since it is designed for use with MuSE, users can interact using
3
<PAGE>
various platforms, devices and tools. MuSE and Continuum were developed for
the Unix operating system and for the Windows-NT(TM) platform.
In addition to its software products, the Company also offers custom
design and other consulting and support services relating to MuSE. The
Company provides such services to customers in order to provide customized
solutions to specific customer problems.
The Company has not generated significant revenue to date.
Historically, its largest customers have been agencies or departments of the
United States government, which accounted for 24%, 70% and 72% of revenue for
the nine months ended June 30, 1998, the fiscal year ended September 30, 1997
and the period from inception to September 30, 1996, respectively. The Company
has devoted most of its resources to date to the development of MuSE and
Continuum, and has conducted only a limited marketing effort for its products
and services.
MuSE is a tool which can be used in a wide variety of industrial,
commercial, entertainment and governmental applications. Each application
would be designed to meet the specific requirements of the end users in a
particular industry. In order to maximize the market potential from its
products and services, the Company will attempt to enter into strategic
relationships with partners that have the financial, technological and
marketing capability of developing applications for MuSE in specific
industries.
In furtherance of this strategy, in July 1998, the Company entered
into an agreement (the "CRI Agreement") with Continuum Resources International
ASA ("CRI"), a Norwegian company and wholly-owned subsidiary of The Norex
Group, a major Norwegian company engaged in providing data collection services
to the oil and gas industry worldwide, for CRI to market, sell, distribute and
support MuSE-based products in the oil and gas industry worldwide. See
"Business--The CRI Agreement." In addition, in July 1998, CRI purchased, for
$8 million, 1,000,000 shares of Common Stock and warrants (the "CRI Warrants")
to purchase an additional 1,000,000 shares of Common Stock. See "Financings."
Although the Company is engaged in preliminary discussions with other
companies to market MuSE in other industries, there can be no assurance
that the Company can or will be able to enter into other strategic
relationships or that any agreements with strategic partners will generate
revenue or profits for the Company. See "Business--Strategic Relationships."
MuSE is based on software licensed to the Company by Sandia
Corporation ("Sandia") pursuant to a license agreement dated October 9, 1995
(the "License Agreement"). Sandia is the operator, under the auspices of the
United States Department of Energy, of Sandia National Laboratories ("SNL").
Prior to organizing the Company, certain of the Company's founders were
employed by Sandia, where they developed MuSE. See "Business--The License
Agreement." Unless the context otherwise requires, references to "Sandia"
include Sandia Corporation and SNL.
4
<PAGE>
The Company is a Delaware corporation, organized on October 24, 1995.
Its executive offices are located at 1601 Randolph, SE, Albuquerque, New
Mexico 87106, and its telephone number is (505) 843-6873.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Securities Offered
by the Company.............................. 1,200,000 Units, each Unit consisting of one
share of Common Stock and one-half Warrant.
One Warrant entitles the holder thereof to
purchase one share of Common Stock. The
Common Stock and Warrants comprising the
Units are separately transferable immediately
upon issuance and will not trade as a Unit.
Exercise of Warrants........................ Each Warrant is exercisable immediately upon
issuance until ____, 2003 and entitles the holder
thereof to purchase one share of Common Stock
at an exercise price of $9.60 per share (subject to
adjustment and subject to earlier redemption by
the Company).
Redemption of Warrants...................... The Warrants are redeemable by the Company
commencing one year from the date of this
Offering, or earlier with the consent of the
Underwriter, at $.01 per Warrant, upon 30 days
prior written notice; provided, however, that the
Warrants are covered by an effective registration
statement, listed on the Nasdaq Stock Market (or
a national securities exchange) and the average
closing price of the Common Stock is at least
$12.00 per share, subject to adjustment, for the
twenty day period prior to the date which is five
days before the date the Warrants are called for
redemption.
Common Stock Outstanding
Prior to Offering (1)..................... 8,763,893 Shares
Common Stock Outstanding
After Offering (2)........................ 9,963,893 Shares
</TABLE>
5
<PAGE>
Warrants Outstanding
Prior to Offering (3)..................... 423,881 Warrants
Warrants Outstanding
After Offering (3)........................ 1,023,881 Warrants
Use of Proceeds............................. The Company intends to apply
the net proceeds of this
Offering primarily for
repayment of certain
indebtedness, marketing
activities, product development
activities, and for working
capital and general corporate
purposes. See "Use of
Proceeds."
Proposed Nasdaq Symbols (4)
Common Stock........................... "MUZE"
Warrants............................... "MUZEW"
Sales by Selling Securityholders............ An additional 423,881 shares of
Common Stock and 423,881
Warrants have been registered
pursuant to the registration
statement of which this
Prospectus forms a part, for
sale by the holders thereof,
subject to a contractual
restriction not to sell such
securities for a period of
twelve months from the date
hereof or earlier with the
consent of the Underwriter.
Sales by the Selling
Securityholders are not part of
the Offering being sold by the
Underwriter and the Company
will not receive any proceeds
from any sales of securities by
the Selling Securityholders,
except upon exercise of
Warrants.
The Selling Securityholders may
effect sales of the Common
Stock, including Common Stock
issuable upon exercise of the
Warrants, or Warrants on the
Nasdaq SmallCap Market at
prevailing prices or in
transactions at negotiated
prices or by gift or a
combination thereof. Any such
sales may be made to the
Underwriter or other registered
broker-dealers, acting as
either principal or broker, at
any time commencing one year
from the date of this
Prospectus or earlier with the
consent of the Underwriter. See
"Sales by Selling
Securityholders."
6
<PAGE>
Risk Factors................................ Investment in the Common Stock
and the Warrants involves a
high degree of risk and
immediate substantial dilution.
See "Risk Factors" and
"Dilution."
- ---------------------------
(1) Does not include Common Stock issuable upon exercise of warrants to
purchase an aggregate of 1,869,243 shares of Common Stock (including
423,881 shares of Common Stock subject to Warrants held by the Selling
Securityholders) and an aggregate of 5,236,841 shares of Common Stock
subject to options under the Company's 1995 and 1996 Stock Option Plans, of
which options to purchase 2,358,749 shares are outstanding.
(2) Does not include (i) 180,000 shares of Common Stock issuable pursuant to
the Underwriter's over-allotment option, (ii) 120,000 shares of Common
Stock issuable pursuant to the Underwriter's Unit Purchase Option, and
(iii) 1,173,881 shares of Common Stock issuable pursuant to exercise of the
Warrants and Warrants includable in the Underwriter's over-allotment option
and the Underwriter's Unit Purchase Option. See "Underwriting."
(3) Does not include Warrants issuable pursuant to the Underwriter's
over-allotment option and the Underwriter's Unit Purchase Option, and other
outstanding warrants to purchase an aggregate of 1,445,362 shares of Common
Stock.
(4) A Nasdaq listing does not provide any assurance that an active trading
market will develop or be maintained.
SUMMARY FINANCIAL INFORMATION
The summary financial information as of June 30, 1998 and September 30,
1997, and for the year ended September 30, 1997 ("fiscal 97"), for the period
October 24, 1995 (inception) to September 30, 1996 ("fiscal 96") and the nine
months ended June 30, 1997, has been abstracted from the financial statements of
the Company included elsewhere herein (audited, with the exception of the nine
months ended June 30, 1998 and 1997). The interim financial statements for the
nine months ended June 30, 1998 and 1997 are unaudited. In the opinion of
management, these financial statements include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair representation of the
interim financial statements. The results of operations for the interim periods
are not necessarily indicative of results that may be expected for the full
year.
7
<PAGE>
Summary Financial Data
Summary Statement of Operations Data:
<TABLE>
<CAPTION>
Nine Months Ended June 30, Fiscal Year Ended
--------------------------------- September 30,
1998 1997 ---------------------------------
------------ -------- 1997 1996(1)
---------- -------
<S> <C> <C> <C> <C>
Revenue.......................... $ 1,761,251 $ 533,351 $ 755,705 $ 355,392
Net loss......................... (2,116,400) (1,264,798) (1,258,745) (1,258,745)
------------ -----------
Net loss per share............... $(0.29) $(0.18) $(0.28) $(0.18)
------------ ----------- ---------- ------------
Weighted average number of
shares of Common Stock
outstanding...................... 7,418,768 7,191,396 7,193,189 6,871,642
============ =========== ========== ===========
Balance Sheet Data:
</TABLE>
<TABLE>
<CAPTION>
At June 30, 1998
---------------------------------
As Adjusted
Actual (2)
------------ --------------
<S> <C> <C>
Working capital ............................. $ 163,861 $ 14,948,861
Total assets................................. 1,710,004 16,403,734
Total liabilities............................ 936,202 386,944
Total stockholders' equity................... 773,802 16,147,532
Net tangible book value per share............ $ .10 $ 1.62
============ ==============
</TABLE>
- ----------------------
(1) Commencing from October 24, 1995 (the date of inception).
(2) As adjusted to give effect to the sale of 1,200,000 Units offered by the
Company, the sale by the Company of 1,000,000 shares of Common Stock to CRI
in a private transaction and the application of a portion of the proceeds
of this Offering to pay certain indebtedness. See "Use Of Proceeds,"
"Capitalization" and "Financing."
8
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is highly speculative
and subject to a high degree of risk, and only those who can bear the risk of
the entire loss of their investment should participate. Prospective investors
should carefully consider the following factors in analyzing this Offering.
History of Losses; Uncertainty of Future Profitability.
The Company has incurred significant losses since inception. For the
nine months ended June 30, 1998, fiscal 1997 and fiscal 1996, the Company
incurred losses of approximately $2.1 million, $2.0 million and $1.3 million,
respectively. Through June 30, 1998, the Company incurred cumulative losses of
approximately $5.4 million. The Company's revenue to date has not been
substantial, and any increase in revenue will be dependent upon the ability of
the Company to market its software, either directly or through distributors or
strategic partners. Following completion of this Offering, the Company expects
to substantially increase its operating expenses in anticipation of increased
revenue with no assurance that the Company will generate sufficient revenue to
cover such expenses. Accordingly, there can be no assurance that the Company
can or will ever achieve profitable operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Explanatory Paragraph in Independent Accountants' Report.
The Company's independent accountants have included an explanatory
paragraph in their report on the Company's financial statements for fiscal
1997 to the effect that the Company's net losses and working capital
deficiency raise substantial doubt about the ability of the Company to
continue as a going concern. See Note 3 of Notes to Financial Statements.
Cash Requirements.
The Company's principal short-term cash obligation is a $680,000
payment of principal and interest on notes which are due in December 1998. The
Company will require substantial additional funds in order to continue its
marketing and product development programs. The Company's capital requirements
depend on numerous factors, including the progress of its product development
programs, the ability of the Company to enter into strategic arrangements or
other marketing arrangements which result in the commercialization of its
products, the need to purchase or lease additional capital equipment and the
cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights. To date, the Company's principal source of
funds has been from the sale of its debt and equity securities. Based upon its
current plans, the Company believes that the net proceeds of this Offering,
together with the net proceeds from the sale of securities to CRI in July 1998
and funds generated from operations, including payments and royalties under
the CRI Agreement, will be sufficient to satisfy the Company's operations for
at least the next twelve months. However, if the Company's current and
projected needs change due to unanticipated events or otherwise, the Company
may be required to obtain additional capital
9
<PAGE>
and there can be no assurance that additional financing will be available or
that the terms of any financing will be acceptable to the Company. If adequate
funds are not available, the Company may be required to delay, scale back or
eliminate one or more of its product development programs, including but not
limited to the further development of MuSE and Continuum or related
products, or the Company may be forced to obtain funds through entering into
arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or products that
the Company would not otherwise relinquish.
Technological Uncertainties.
The commercial success of the Company's software will be dependent on
its acceptance by potential customers. The Company's software is based on
technology that has not been generally proven in the marketplace and is
subject to the risks of failure inherent in products based on new
technologies. A significant portion of the Company's resources, including the
proceeds of this Offering, will be used for research and development and
marketing relating to the Company's software and other products and services.
There can be no assurance that the Company can or will develop marketable
products. The failure of the Company to achieve market acceptance of its
products will have a material adverse effect on the Company.
Marketing Activities Required; Anticipated Dependence on Strategic Partners.
The Company's ability to generate revenue and profits from its
software products is dependent upon its ability to successfully market MuSE
and applications using MuSE. The Company's marketing efforts will be
directed principally, at least initially, toward potential strategic partners
who can develop and market applications based on MuSE products in various
industries. Substantial marketing efforts will be required to obtain such
strategic partnerships. A portion of the proceeds of this Offering is
allocated to marketing activities, although no assurance can be given that the
Company will be successful in its marketing efforts. In addition, the Company
is subject to the risks inherent in any attempt to commercialize products
based on new technology, many of which are not within the Company's control.
See "Business--Marketing and Sales."
To date, the Company has undertaken only a limited marketing program
which has been conducted by its officers, employees and, to a lesser extent,
independent consultants. The Company believes that, in order to realize the
maximum market potential from its products and services, it will be necessary
for the Company to enter into strategic relationships with partners that have
the financial, technological and marketing capability to develop applications
for MuSE for use in specific industries. Other than the CRI Agreement, the
Company does not currently have any agreements or understandings with other
potential strategic partners, and there can be no assurance that the Company
can or will be able to enter into strategic relationships or that any
agreements or arrangements with strategic partners will generate revenue or
profits for the Company.
10
<PAGE>
To the extent that the Company relies upon strategic partners to
perform such functions as research and development and marketing or
commercialization of applications based on MuSE products, the Company will
be dependent upon the ability and willingness of such strategic partners to
perform its obligations in a timely manner. The amount and timing of the
allocation of resources by any strategic partner pursuant to its arrangement
or agreement with the Company may be affected by numerous factors not within
the control of the Company, including, but not limited to, a change in
management or direction by the strategic partner, the introduction by the
strategic partner of products which may compete with the Company's products or
applications or the strategic partner's perception of the market for the
Company's products.
Certain conflicts of interest could arise between the Company and one
or more of its strategic partners which, depending on the nature of the
conflict, could have a material adverse effect upon the Company's business,
prospects and financial condition. Although the Company will seek to restrict
its strategic partners from developing competitive products it may not be able
either to obtain or enforce such restrictions. The Company's strategic
partners or their affiliates may develop, either alone or with others,
products which are competitive or have applications which are competitive with
the Company's products. Such conflicts could affect the support provided by
the strategic partner for the Company's products which could have a material
adverse effect on the Company.
The ability of the Company to enter into arrangements with strategic
partners on acceptable terms may be affected by the Company's financial
condition. To the extent that the Company is in a position where it requires
substantial capital to fund its operations, it may be necessary for the
Company to grant to strategic partners certain rights to the Company's
products or technology which the Company would not otherwise grant.
Dependence on License Agreement.
MuSE is based on software which is licensed to the Company by
Sandia pursuant to the License Agreement, which grants the Company exclusive
rights to develop and commercialize MuSE until October 2005 and thereafter
provides a non-exclusive right through 2015. At the end of such ten year
period of exclusivity, the Company may request Sandia to extend exclusivity
through 2015, which determination shall be made in Sandia's sole discretion.
Sandia has the right to terminate the license or make the license
non-exclusive in the event the Company fails to pay the required royalties
under the License Agreement, with an annual minimum royalty of $20,000 through
the year ending December 31, 2006. The Company is also obligated to pay an
annual license fee of $10,000 through the year ending December 31, 1999 and a
one-time payment of $20,000 prior to July 1999. Any termination of the License
Agreement will have a material adverse effect on the Company. Furthermore, at
such time as the license becomes non-exclusive, other companies may obtain the
rights to the MuSE technology to develop products which may compete with
those of the Company. See "Business--The License Agreement" and "Business
- --Competition."
11
<PAGE>
Rapid Changes in Technology.
The computer industry in general and the software industry in
particular are subject to rapid changes in technology, which can make hardware
or software obsolete. Advances in technology create markets for new products
and change or reduce the market for existing products. There can be no
assurance that future technological developments will not result in
technologies which render the Company's products or applications obsolete. In
order for the Company to obtain market acceptance of MuSE and Continuum or
related products, the Company must be able to convince its potential customers
and strategic partners that it has the technological capabilities to meet the
technological demands of the marketplace. Furthermore, the willingness of a
potential strategic partner to enter into an agreement or arrangement with the
Company and to devote the financial and personnel resources to the development
of applications using MuSE may be dependent on, among other factors, the
ability of the Company or the strategic partner to offer solutions which are
competitive with products developed and offered by others and whether such
products can generate an acceptable market share.
Discretion as to Use of Proceeds.
Except for the payment of approximately $680,000 to pay principal and
interest on outstanding debt due in December 1998, the net proceeds of this
Offering are allocated to working capital purposes, including marketing and
research and development and other general corporate purposes. Circumstances
may change which may result in a reallocation of such intended use of
proceeds. Accordingly, management will have broad discretion with respect to
the expenditure of in excess of 91% of the net proceeds of this Offering.
Purchasers of the Units offered hereby will be entrusting their funds to the
Company's management, upon whose judgment the investors must depend, with only
limited information concerning management's specific plans or intentions.
Uncertainty of Protection of Patents and Intellectual Property Rights.
The Company believes that patent and other protection of intellectual
property rights is crucial to its business and that its future will depend in
part on its ability to develop proprietary and/or patented products, maintain
trade secret protection and operate without infringing the proprietary rights
of others. The Company's products are based on patents and other proprietary
technology developed by Sandia and by the Company. Patents have been issued
separately to Sandia and the Company with respect to various aspects of
MuSE and to the Company with respect to Continuum. However, no assurance
can be given that the patents will be upheld if challenged. Any challenge to
the validity the Company's patent rights, regardless of whether the Company
ultimately prevails, could be expensive and could require the Company to use a
significant portion of its resources in any such litigation, without any
assurance of success. Pursuant to the License Agreement, Sandia has the
obligation to defend the patents licensed to the Company against any claim of
infringement or invalidity, as a result of which the Company will be dependent
upon Sandia's willingness or ability to defend the patents against any claim.
No assurance can be given that third parties will not challenge the validity
and enforceability of the patent applications or any patents owned or issued
in the future to the Company, or that such challenges will not be
12
<PAGE>
successful. There can be no assurance that patent infringement claims will not
be asserted and found to have merit, that the Company will not be enjoined
from using MuSE and licensing MuSE, or that the Company would not be
forced to obtain a license and pay future royalty fees as well as past damages
to the party claiming infringement.
The Company will generally rely on a combination of trade secret,
copyright, trademark and patent law to protect its proprietary rights in the
intellectual property developed by it or licensed to the Company. Although the
Company intends to provide products utilizing MuSE to its customers
primarily in object code form, no assurance can be given that unauthorized
third parties will not be able to duplicate the software code.
Risk of Product Liability; Product Liability Insurance May Be Insufficient or
Unavailable.
The use of the Company products, including products designed and
marketed by a potential strategic partner, may expose the Company to liability
claims resulting from the use of the products. The Company currently maintains
limited product liability insurance in the aggregate amount of $2,000,000 per
occurrence with a total aggregate limit of $5,000,000, and there can be no
assurance that such coverage will be adequate. Furthermore, there can be no
assurance that adequate product liability insurance will be available to the
Company or any of its strategic partners in the future at a reasonable cost,
if at all. The inability of the Company or any strategic partner to obtain
sufficient coverage at an acceptable cost or to obtain other protection
against potential liability could prevent or inhibit the commercialization of
the one or more of Company's proposed products. A successful product liability
claim or a product recall would have a material adverse effect upon the
Company's business, prospects and financial condition.
Government Contracts.
The Company maintains several Federal government contracts and
receives grants from the Federal government, all of which are cancellable and
subject to renegotiation at the option of the government for any reason. The
Company derives a significant portion of current revenues, and expects to
continue to derive a material portion of its revenues in the near future, from
government contracts. Accordingly, any such cancellation or renegotiation
relating to significant projects could have a material adverse impact on the
Company.
Dependence on Management.
The Company is dependent upon the services of Dr. Creve Maples,
Chairman of the Board and Chief Technical Officer, Curtiz J. Gangi, President,
and Craig Peterson, Senior Software Development Manager, for the development
of the Company's products. Given the Company's early stage of development and
the shortage of personnel trained in the application and adaptation of
MuSE, the Company is dependent on its ability to identify, hire, train,
retain and motivate high quality personnel, especially highly skilled
engineers involved in the ongoing developments required to adapt MuSE to
specific applications and solutions. Loss of the services of any of Dr. Maples
or Messrs. Gangi or Peterson would have a material adverse effect on the
Company's
13
<PAGE>
operations and financial condition. Pursuant to the underwriting agreement,
the Company has agreed to obtain key man life insurance on the lives of Dr.
Maples and Mr. Gangi in the amount of $1,000,000 each and Mr. Peterson in the
amount of $500,000 while employed by the Company.
Competition.
There are many companies, both public and private, engaged in
developing and marketing software products which compete or have applications
which compete with the Company's software products. At the present time,
Division Group PLC ("Division"), Paradigm Systems, Inc. ("Paradigm"), Advanced
Visual Systems, Inc., Gemini Technology Corp., Autodesk, Inc. ("Autodesk") and
SGI International ("SGI"), among others, market such products. The Company
believes that the principal factors affecting its ability to compete include
such factors as the functionality and architecture of MuSE, the performance
of specific applications of products using MuSE, the price of MuSE and
the perceived ability of the Company and/or a strategic partner to support and
service MuSE after installation.
Most of the companies with which the Company competes or is expected
to compete have substantially greater financial resources, research and
development capabilities, sales and marketing staffs and distribution channels
than the Company. There can be no assurance that products and services based
on MuSE will achieve sufficient quality, functionality or
cost-effectiveness to compete with existing or future alternatives.
Additionally, other major software companies may be able to develop competing
products and, if MuSE gains market acceptance, other more established
companies may enter the Company's markets. See "Business--Competition."
Effects of Customers' Cost-Reduction Programs.
The pricing of software products in general, and those, such as the
Company's, that are based on new technology in particular, may be affected by
the continuing efforts of end-users and project directors to contain or reduce
costs through various means. The Company cannot predict the effect such cost
reduction measures or changes in the overall economy may have on its business,
and no assurance can be given that any such actions or changes in the economy
will not have a material adverse effect on the Company's business, financial
condition and results of operations. Further, to the extent that such actions
or changes have a material adverse effect upon the business, financial
condition and profitability of other companies that are prospective strategic
partners for certain of the Company's products, the Company's ability to
commercialize its products may be adversely affected.
Effective Control by Officers, Directors and Principal Stockholders.
The officers and directors of the Company currently beneficially own
approximately 32.2% of the Common Stock of the Company (approximately 28.8%
after this Offering) and will have the ability to significantly influence the
election of the directors of the Company and otherwise significantly influence
the affairs of the Company. In addition, CRI owns approximately 11.4%
14
<PAGE>
of the Common Stock of the Company (10.0% after this Offering) and may also be
able to significantly influence the affairs of the Company.
Absence of Dividends.
The Company has not paid any cash dividends on its capital stock and
does not anticipate paying any such cash dividends in the foreseeable future.
Earnings, if any, will be retained to finance future growth.
Substantial Dilution of Book Value.
An investment in such Units will result in an immediate and
substantial dilution to investors in this Offering of $6.38 per share, or
79.8% of the initial public offering price of $8.00 per Unit, with no value
being ascribed to the Warrants.
Shares of Common Stock Issuable Pursuant to Warrants and Underwriter's Unit
Purchase Option; Registration Rights.
In addition to the 8,763,893 shares of Common Stock outstanding and
the shares of Common Stock and Warrants issuable pursuant to this Offering,
there are outstanding Warrants to purchase 423,881 shares of Common Stock,
which Warrants are held by the Selling Securityholders, and other outstanding
warrants to purchase 1,445,362 shares of Common Stock. The Company will issue
to the Underwriter for nominal consideration the Underwriter's Unit Purchase
Option to purchase 120,000 Units. The Company also has stock option plans
pursuant to which options to purchase 2,358,749 shares of Common Stock are
outstanding. See "Financings," "Sales by Selling Securityholders,"
"Management--Stock Option Plans" and "Underwriting." The holders of Warrants
and the Underwriter's Unit Purchase Option have certain demand and/or
piggyback registration rights. The Company will bear the cost of preparing
such registration statements but will not receive any proceeds from the sale
of shares of Common Stock or Warrants pursuant thereto other than payment of
the exercise price with respect to any Warrants that are exercised. The
Company anticipates that it will register the shares of Common Stock pursuant
to the Company's stock option plans pursuant to a Form S-8 registration
statement. CRI also possesses certain demand and piggyback registration rights
with respect to the 1,000,000 shares of Common Stock held by CRI and the
1,000,000 shares of Common Stock underlying the CRI Warrants. The existence of
these registration rights, as well as the sale of shares of Common Stock
pursuant to registration statements which the Company may be required to
prepare, may have a depressive effect on the price of the Common Stock in the
open market. In addition, the existence of such warrants and options and the
registration rights referred to above may adversely affect the terms on which
the Company can obtain additional equity financing. The holders of warrants
are likely to exercise them at a time when the Company would otherwise be able
to obtain capital on terms more favorable than those provided by the Warrants.
15
<PAGE>
Arbitrary Determination of Offering Price.
The initial public offering price and composition of the Units and
terms of the Warrants have been determined by negotiations between the Company
and the Underwriter and does not necessarily relate to the Company's book
value, net worth, financial condition or other established criteria of value.
See "Underwriting" for information about factors considered in determining the
initial public offering price. The factors considered in determining the
public offering price and terms, in addition to prevailing estimates of the
business potential and earning prospects of the Company, the present state of
the Company's development and an assessment of the Company's management, as
well as the consideration of the foregoing factors in relation to market
valuations of comparable companies, do not necessarily bear any relationship
to the Company's assets, accounting results or the book value of the Company
or other generally accepted criteria of value. See "Underwriting."
No Prior Public Trading Market.
Prior to this Offering, there was no established market for the
Company's securities. The Common Stock and Warrants will be listed on the
Nasdaq SmallCap Market, however, there can be no assurance that an active
market in the Common Stock or Warrants will develop or be maintained.
Purchasers of the securities offered hereby may, therefore have difficulties
in selling such securities should they desire to do so. The market price for
the Company's securities following this Offering may be highly volatile.
Factors such as the Company's financial results, introduction of new products
in the marketplace, and various factors affecting the computer industry
generally may have a significant impact on the market price of the Company's
securities, as well as price and volume volatility affecting small and
emerging growth companies, in general, and not necessarily related to the
operating performance of such companies. Accordingly, securities received in
this Offering may be deemed illiquid.
A significant number of the Units may be sold to customers of the
Underwriter. Such customers may subsequently engage in the sale or purchase of
the Common Stock or Warrants or with the Underwriter. Although it has no
obligation to do so, the Underwriter may become a market maker and otherwise
effect transactions in such securities, and, if it participates in such
market, may be a dominating influence in the trading of such securities. The
prices and the liquidity of such securities may be significantly affected by
the degree, if any, of the participation of the Underwriter in such markets,
should a market develop.
Potential Adverse Effect of Redemption of the Warrants.
Commencing one year from the date of this Prospectus, or earlier with
the consent of the Underwriter, the Warrants may be redeemed by the Company at
a redemption price of $.01 per Warrant upon not less than 30 days' notice if
the average closing price per share of the Common Stock is at least $12.00,
subject to adjustment, during the 20 day period ending not earlier than five
days from the date the Warrants are called for redemption. Redemption of the
Warrants could force the holders to exercise the Warrants and pay the exercise
price therefor at a time when it
16
<PAGE>
may be disadvantageous for the holder to do so, to sell the Warrants at the
then current market price when they might otherwise wish to hold the Warrants,
or to accept the redemption price, which, at the time the Warrants are called
for redemption, is likely to be substantially less than the market value of
the Warrants. The Company will not call the Warrants for redemption except
pursuant to a currently effective prospectus and registration statement. See
"Description of Securities--Class A Redeemable Common Stock Purchase
Warrants."
Current Prospectus and State Registration Required to Exercise Warrants.
Holders of the Warrants will only be able to exercise the Warrants if
(a) a current prospectus under the Securities Act relating to the shares of
Common Stock issuable upon exercise of the Warrants is then in effect and (b)
such securities are qualified for sale or exemption from qualification under
the applicable securities laws of the states in which the various holders of
Warrants reside. Although the Company has undertaken to use its best efforts
to maintain the effectiveness of a current prospectus covering the Common
Stock underlying the Warrants, and may not call the Warrants for redemption
unless there is a current and effective registration statement covering the
issuance of the Common Stock upon exercise of the Warrants, there can be no
assurance that the Company will be able to do so. Pursuant to Section 10(a)(3)
of the Securities Act, this Prospectus, unless amended or supplemented in
accordance with the rules and regulations of the Commission pursuant to the
Securities Act, may not be used by the Company in connection with the exercise
of any Warrants subsequent to nine months from the date of this Prospectus.
Prior to the expiration of nine months from the date of this Prospectus, it
may be necessary to amend or supplement this Prospectus under certain
conditions, in which event the Warrants could not be exercised prior to the
date of the amended Prospectus or supplement. Unless there is an effective and
current registration statement covering the issuance of the Common Stock upon
exercise of the Warrants, the Company will not accept payment for, or issue
Common Stock with respect to, the exercise of any Warrants, and any payments
made by a Warrant holder will be refunded by the Company. The value of the
Warrants may be greatly reduced if a current prospectus covering the Common
Stock issuable upon the exercise of the Warrants is not kept effective or if
such securities are not qualified or exempt from qualification in the states
in which the holders of Warrants reside. See "Description of Securities--
Class A Redeemable Common Stock Purchase Warrants."
The Company has registered or qualified the Warrants for sale in a
limited number of states. There is no assurance that, at the time a holder of
Warrants desires to exercise the Warrants, that such holder will reside in a
state in which the underlying Common Stock may be issued, even if the
Underwriter is able to sell the Units in such states. Although the Company is
not aware of any states which prohibit the registration or qualification of
securities of the type offered by the Company and anticipates that it will
qualify for available after-market exemptions in a majority of states within
several months after the completion of the Offering, there can be no assurance
that an exception permitting the exercise of the Warrants will be available in
any jurisdiction other than those in states which the Common Stock and
Warrants were initially registered or are exempt from registration at the time
a holder seeks to exercise Warrants.
17
<PAGE>
Possible Restrictions on Market Making Activities in Company's Securities.
The Common Stock and Warrants will be listed on the Nasdaq SmallCap
Market. The Underwriter has advised the Company that it intends to make a
market in the Company's securities following consummation of this Offering.
Regulation M promulgated under the Exchange Act may prohibit the Underwriter
from engaging in any market making activities with regard to the Company's
securities for the period from one or five business days (or such other
applicable period as Regulation M may provide) prior to any distribution by
the Underwriter of the Company's securities until the later of the termination
of such distribution activity or the termination (by waiver or otherwise) of
any right that the Underwriter may have to receive a fee for the sale of such
securities. As a result, the Underwriter may be unable to provide a market for
the Company's securities during such distribution period. Any temporary
cessation of such market making activities could have an adverse effect on the
market price of the Company's Securities. See "Underwriting."
Future Sales of Common Stock Under Rule 144 or Otherwise.
All of the 8,763,893 issued and outstanding shares of Common Stock as
of the date of this Prospectus, are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities Act. Of the total
shares outstanding, a majority of such shares are subject to the restrictions
contained in certain agreements with the Underwriter and officers, directors
and certain stockholders of the Company restricting the sale or other
disposition of such persons' Common Stock for twelve (12) months following the
date of this Prospectus without the prior written consent of the Underwriter.
Subsequent to the end of the 12 month restriction, all of such restricted
shares will be eligible for sale under Rule 144. In general, under Rule 144, a
person (or persons whose shares are aggregated) who has satisfied a one-year
holding period may sell "restricted securities" within any three-month period
limited to a number of shares which does not exceed the greater of one percent
of the then outstanding shares or the average weekly trading volume during the
four calendar weeks prior to such sale. Rule 144 also permits the sale
(without any quantity limitation) of "restricted securities" by a person who
is not an affiliate of the issuer and who has satisfied a two-year holding
period. Accordingly, the 1,873,029 shares (and all shares subject to options
and warrants) held by officers and directors will be subject to the volume
limitations described above so long as such persons are deemed affiliates of
the Company. See "Shares Eligible for Future Sale" and "Principal
Stockholders."
Possible Delisting of Securities from Nasdaq SmallCap Market.
The Common Stock and Warrants will be listed on the Nasdaq SmallCap
Market. The Company's failure to meet the listing maintenance criteria of the
Nasdaq SmallCap Market in the future for any reason may result in the
discontinuance of the inclusion of the Company's securities on such market. To
qualify for continued inclusion in the Nasdaq SmallCap Market, a company will
have to maintain (a) either $2,000,000 in net tangible assets (total assets
minus total liabilities and goodwill); market capitalization of $35,000,000;
or net income of $500,000 in the most recently completed fiscal year or in two
of the last three most recently completed fiscal years; and
18
<PAGE>
(b) a market value of the public float of $1,000,000. In addition, continued
inclusion requires two market-makers and a minimum bid price of $1.00. In the
event of Nasdaq SmallCap Market delisting, trading, if any, in the Company's
securities may then continue to be conducted on the OTC Electronic Bulletin
Board or in the non-Nasdaq over-the-counter market. As a result, an investor
may find it more difficult to dispose of, or to obtain accurate quotations as
to the market value of the Company's securities.
DILUTION
The net tangible book value of the Company's Common Stock at June 30,
1998 was approximately $.10 per share. Net tangible book value per share of
Common Stock represents the amount of the Company's tangible assets reduced by
the amount of its liabilities divided by the number of outstanding shares of
Common Stock. Without taking into account any change in the net tangible book
value of the Company after June 30, 1998, other than as a result of (i) the
sale of the 1,200,000 shares of Common Stock included in the Units offered
hereby at an initial public offering price of $8.00 per share, after deducting
estimated fees and other expenses of the Offering, and (ii) the receipt by the
Company of $8.0 million from the sale of securities to CRI, net of a
commission payable to an officer of the Company, the Company's net tangible
book value as of June 30, 1998 would have been approximately $1.62 per share.
This amount represents an immediate increase in net tangible book value per
share of approximately $1.52 to the present stockholders and an immediate
dilution of Common Stock (the difference between the offering price of the
Units (with no value ascribed to the warrants) and the net tangible book value
per share after the Offering) of approximately $6.38, or 79.8% of the initial
public offering price, to the purchasers of the Units.
The following table illustrates the dilution of one share of Common
Stock as of June 30, 1998:
Public offering price per share $8.00
Net tangible book value per share before the
Offering $ 0.10
Increase per share attributable to new investors $ 1.52
Pro forma net tangible book value per share after the -------
Offering $1.62
--------
Dilution per share to new investors. $6.38(1)
========
- -----------
(1) If the Underwriter exercises the over-allotment option in full, the pro
forma net tangible book value would be $1.72 per share of Common Stock,
resulting in an increase in the net tangible book value per share of $1.62
and dilution to the public investors of $6.28 per share.
19
<PAGE>
The following table summarizes on a pro forma basis, as of August 27,
1998, the differences between existing stockholders and purchasers of shares
in this Offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average
purchase price per share:
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------------- ---------------------------- Per
Number Percent Amount Percent Share
---------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Current
Stockholders* 7,763,893 78.0% $ 3,073,279 13.3% $ 0.4
CRI 1,000,000 10.0% $ 8,000,000 39.4% $ 8.00
Public Investors 1,200,000 12.0% $ 9,600,000 47.3% $ 8.00
---------- --------- ------------- --------
Total 9,963,893 100.0% $ 20,673,279 100.0%
========== ========= ============= ========
</TABLE>
- --------------
* Other than CRI.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered
hereby are estimated to be $7,985,000 after deducting underwriting discounts
and commissions of approximately $960,000 and expenses of this Offering of
approximately $655,000. The Company anticipates that the net proceeds of this
Offering will be applied substantially as follows:
Approximate
Dollar
Allocation of Proceeds Amount Percent
Payment of December 1997 Notes $ 680,000 9%
Marketing Activities 1,850,000 23%
Product Development Activities 2,400,000 30%
Working Capital 3,055,000 38%
------------------ -------------
Total $ 7,985,000 100%
================== =============
20
<PAGE>
The foregoing represents the Company's current estimate of its
proposed use of the net proceeds of this Offering based upon the present state
of its business, operations and plans, current business conditions and the
Company's evaluation of the market for its services. Except for the payment of
the December 1997 Notes, for which approximately $680,000 is required
(inclusive of estimated interest), management will have broad discretion with
respect to the expenditure of a substantial portion of the net proceeds of
this Offering. In particular, management will have broad discretion to
allocate funds to marketing, product development and other working capital
purposes, based on the business of the company as it develops from time to
time. Thus, conditions may develop which could cause management to reallocate
proceeds from the categories listed above, including changes in its marketing
program, the ability of the Company to enter into agreements or arrangements
with strategic partners and changes in government policy, none of which can be
predicted with any degree of certainty. Furthermore, future events, including
unforseen problems, expenses, difficulties, complications and delays
frequently encountered by businesses, as well as changes in the economic
climate, changes or anticipated changes in government regulations, new
technologies, competition, reimbursement policies or acquisition or joint
venture opportunities, may make the reallocation of funds necessary or
desirable. Any such reallocation will be at the discretion of the Board of
Directors.
The Company anticipates, based on currently proposed plans and
assumptions relating to its operations, that the proceeds of this Offering,
together with the proceeds of the sale of securities to CRI in July 1998 and
projected cash flow from operations, including payments and royalties under
the CRI Agreement, will be sufficient to satisfy its contemplated cash
requirements for at least twelve months following the consummation of this
Offering. The Company has no current arrangements with respect to, or sources
of, additional financing. There can be no assurance that any such additional
financing will be available to the Company on commercially reasonable terms,
or at all.
To the extent that the Underwriter's over-allotment option is
exercised, additional net proceeds will be added to working capital. Pending
utilization of the proceeds of this Offering, the Company may make temporary
investments in bank certificates of deposit, prime commercial paper, United
States Government obligations, investments in money-market funds or other
similar short-term low-risk investments.
CAPITALIZATION
The following table sets forth the Company's capitalization at June
30, 1998, and as adjusted to give effect to (a) the issuance and the sale of
the 1,200,000 Units offered hereby, (b) the sale of securities to CRI, and (c)
application of a portion of the net proceeds to pay certain debt. This table
should be read in connection with the Company's Financial Statements and the
related notes thereto included elsewhere in this Prospectus.
21
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998
-------------------------------------------
Actual As Adjusted
----------------- ---------------------
<S> <C> <C>
Short term debt ....................................................... $ 804,914 $ 237,566
----------------- ---------------------
Stockholders' equity:
Common stock, par value $.015 per share, 50,000,000
shares authorized; 7,763,893 shares outstanding;
9,963,893 shares as adjusted (1)................................... 116,458 149,458
Additional paid-in-capital......................................... 6,459,091 21,799,821
Stock subscription receivable (2).................................. (87,500) (87,500)
Accumulated deficit................................................ (5,714,247) (5,714,247)
----------------- ---------------------
Total stockholders' equity ................................... $ 773,802 $ 16,147,532
----------------- ---------------------
Total Capitalization................................................... $ 1,578,716 $ 16,385,098
================= =====================
</TABLE>
- ----------------------
<TABLE>
<S> <C>
(1) Does not include an aggregate of 9,156,084 shares of Common Stock reserved as follows:
(a) 2,869,243 shares of Common Stock issuable upon exercise of outstanding warrants
(including Warrants to purchase 423,881 shares of Common Stock held by the Selling
Security holders and Warrants to purchase 1,000,000 shares of Common Stock held by CRI),
(b) 5,236,841 shares of Common Stock issuable upon exercise of options granted or to be
granted pursuant to the Company's 1995 and 1996 Stock Option Plans (of which, options to
purchase 2,358,749 shares of Common Stock are outstanding), (c) 600,000 shares of
Common Stock issuable upon exercise of Warrants included in the Units, (d) 270,000 shares
of Common Stock issuable as part of the Units issuable upon exercise of the Underwriter's
over-allotment option and upon exercise of Warrants issuable upon exercise of such over-
allotment option, and (e) 180,000 shares of Common Stock issuable upon exercise of the
Underwriter's Unit Purchase Option and upon exercise of Warrants issuable upon exercise
of the Underwriter's Unit Purchase Option.
(2) See "Certain Relationships and Related Transactions" and Note 5 of Notes to Financial
Statements.
</TABLE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
capital stock. The Company currently intends to retain its earnings to finance
the growth and development of its business and therefore does not anticipate
paying any cash dividends in the foreseeable future.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto
appearing elsewhere in this Prospectus.
Operational Overview
From the Company's inception (October 24, 1995) until September 30,
1996 the Company's primary activities consisted of developmental activities,
including the acquisition of MuSE; research and development relating to MuSE
and Continuum; commercialization of MuSE; developing marketing strategies;
selecting a management team; and obtaining financing. During fiscal 1997, the
Company commenced active sales and marketing activities relating to MuSE and
related products and began generating revenues from sales and licensing of
such products and providing consulting and maintenance services.
In June 1998, the Company entered into the CRI Agreement with respect
to distribution of the Company's products and services in the oil and gas
industry worldwide. The CRI Agreement provides that in exchange for such
exclusive rights, CRI will pay the Company a non-refundable license fee of
$5,000,000 ($1,000,000 of which was paid in June 1998 and the balance of which
is due in two equal installments on September 30, 1998 and November 30, 1998)
and minimum sales commitments totaling $12,000,000 over the next three years.
The Company's strategy is to enter into similar arrangements in other markets.
See "Business."
Revenue during the nine months ended June 30, 1998 (the "June 1998
period) was $1,761,000, of which $1,000,000 reflects the initial payment
pursuant to the CRI Agreement. Although such revenues represent a significant
increase over the nine months ended June 30, 1997 (the "June 1997 period"),
such results are not comparable since the Company did not begin
commercialization and marketing efforts until the latter part of fiscal 1997.
The net loss during the nine months ended June 30, 1998 was $2,116,400 due in
part to increased marketing and personnel costs associated with the
commercialization effort, interest expense and $948,355 for a non-cash imputed
compensation expense incurred in connection with the repricing of employee
stock options.
Research and development expense was $710,000 for the June 1998
period, a 17.1% increase over the research and development expense for the
June 1997 period, which was $606,000. The increase reflects expenditures
relating to the development of Continuum software modifications to enable MuSE
and Continuum to operate on Windows-NT(TM) computers.
Revenues generated during fiscal 1997 and fiscal 1996 aggregated
approximately $756,000 and $355,000, respectively. Revenues for fiscal 1997
consisted primarily of product sales, licensing fees and consulting and
maintenance fees. Revenues for fiscal 1996 consisted primarily of fees related
to research and development services provided on behalf of government and
industrial customers. The net loss from operations for fiscal 1997 and for
fiscal 1996 of ($2,049,000) and ($1,204,000), respectively, resulted
principally from the disproportionate amount of overhead
23
<PAGE>
expenses in relation to revenues received due to the recent commercialization
of the Company's products and services in fiscal 1997.
Research and development expense was $742,000 and $599,000 for fiscal
1997 and fiscal 1996, respectively, related primarily to the development
of MuSE and Continuum.
Liquidity and Capital Resources
The Company's independent auditors have included an explanatory
paragraph in their report on the Company's financial statements to the effect
that certain matters raise substantial doubt about the Company's ability to
continue as a going concern, which is contingent upon, among other things, the
Company's ability to secure financing and attain profitable operations.
To date, the Company's capital needs have been funded through a
series of debt and equity financings.
In December 1995, the Company sold convertible promissory notes and
warrants for net proceeds of approximately $900,000, which proceeds were used
to pay certain liabilities assumed in connection with the Acquisition. In
April 1996, such notes were converted into an aggregate of 131,579 shares of
Common Stock.
During April through September 1996, the Company received net
proceeds of approximately $1,700,000 through the sale of Common Stock.
In June 1997, the Company received net proceeds of $1,113,750 from
the issuance of notes in the principal amount of $1,237,500. Of such notes,
$937,500 were paid on maturity in June 1998 out of the proceeds of the April
1998 Private Placement and $309,960 of such notes and accrued interest were
converted to an aggregate of 68,880 shares of Common Stock and Warrants to
purchase 68,880 shares of Common Stock.
In December 1997, the Company completed a private placement (the
"December 1997 Private Placement") consisting of 8% promissory notes (the
"December 1997 Notes") in the aggregate principal amount of $875,000 due
December 1998 and an aggregate of 57,566 shares of Common Stock. The net
proceeds to the Company from the December 1997 Private Placement was $688,000.
The December 1997 Notes are payable in December 1998, together with accrued
interest thereon. The Company will use approximately $680,000 of the proceeds
of this Offering to repay the December 1997 Notes, together with accrued
interest thereon. The Company paid $265,000 of such notes including interest
in August 1998. See "Use of Proceeds."
In April and May 1998, the Company sold an aggregate of 355,000
shares of Common Stock and warrants to purchase 355,000 shares of Common
Stock, for net proceeds of $1,411,561 (the "April 1998 Private Placement").
The Underwriter acted as Placement Agent in connection with the April 1998
Private Placement and received a commission of 10% of the gross proceeds of
such sale
24
<PAGE>
and reimbursement of its expenses (including legal fees and disbursements)
incurred in connection with such placement of $25,000.
In July 1998, the Company sold 1,000,000 shares of Common Stock and
CRI Warrants to purchase 1,000,000 shares of Common Stock to CRI for an
aggregate purchase price of $8,000,000. The Company paid a commission of
$520,000 to an officer of the Company in connection with such transaction. See
"Financings."
The Company will require substantial additional funds in order to
continue its marketing and product development programs. The Company's capital
requirements depend on numerous factors, including the progress of its product
development programs, the ability of the Company to enter into strategic
arrangements or other marketing arrangements which result in the
commercialization of its products, the need to purchase or lease additional
capital equipment and the cost of filing, prosecuting, defending and enforcing
any patent claims and other intellectual property rights. To date, the
Company's principal source of funds has been from the sale of its debt and
equity securities. Based upon its current plans, the Company believes that the
net proceeds of this Offering, together with the net proceeds from the sale of
securities to CRI in July 1998 and funds generated from operations, including
payments and royalties under the CRI Agreement, will be sufficient to satisfy
the Company's operations for at least the next twelve months. However, if the
Company's current and projected needs change due to unanticipated events or
otherwise, the Company may be required to obtain additional capital and there
can be no assurance that additional financing will be available or that the
terms of any financing will be acceptable to the Company. If adequate funds
are not available, the Company may be required to delay, scale back or
eliminate one or more of its product development programs, including but not
limited to the further development of MuSE and Continuum or related products,
or the Company may be forced to obtain funds through entering into
arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or products that
the Company would not otherwise relinquish.
Year 2000 Compliance
There are issues associated with the programming code in existing
computer systems as the year 2000 approaches. The "year 2000 problem" is
pervasive and complex, as virtually every computer operation will be affected
in some way by the rollover of the two digit year value of 00. The issue is
whether computer systems will properly recognize date sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. The
Company has not verified that companies doing business with it are year 2000
compliant. The Company does not anticipate that it will incur significant
operating expenses or be required to invest heavily in computer systems
improvements to be year 2000 compliant. The Company believes that its products
are currently year 2000 compliant. However, significant uncertainty exists
concerning the potential costs and effects associated with year 2000
compliance. Any year 2000 compliance problem of either the Company or its
customers or strategic partners could have a material adverse effect on the
Company's business, results of operations and financial condition.
25
<PAGE>
BUSINESS
Products and Services
The Company was organized to commercialize the MuSE technology and
software which were initially developed by the Company's founders and some of
its current employees, at Sandia. Muse allows the user to develop and execute
software programs and import data into a multisensory environment. The MuSE
software has been substantially redesigned and rewritten by the Company from the
original prototype developed at Sandia.
MuSE is a software shell that allows data representation and analysis
through a new approach to human-computer interaction and software development.
MuSE is designed both to allow the manipulation of data and information from
other sources and the incorporation of software programs within the MuSE
environment, and to enhance the user's ability to understand and analyze such
data and information. MuSE can be used with different computing platforms and
different physical or logical input and output devices. The multisensory
capabilities of MuSE enables the user to present information in real-time using
visual, auditory, tactile and other physical or interactive tools.
MuSE assists users in creating synthetic or virtual environments
in which information can be processed in ways which are different from
traditional use of computers. Most computer software requires users to learn
an entirely new way of interacting with and processing information that is not
consistent with human perceptual processing. Muse adapts the computer to
humans by complementing human perceptual processes. MuSE is designed to
allow the user to interact with the computer as if the computer is an
extension of the user and the way that particular user processes and analyzes
information.
MuSE possesses the following attributes:
Device Independence: MuSE permits the incorporation of
most existing computer peripheral device technologies, including
flat-screen display, stereo viewing, head and body tracking devices,
"virtual reality," sound, speech recognition, voice synthesis, and
other mechanical devices such as mouse, joystick and steering wheel,
without changes to the software application code.
Software Simplification: Software development and
integration for use in the MuSE environment is significantly
simplified by eliminating the need to write specific software code to
access and interface hardware devices within the MuSE environment.
Real-Time Operation: MuSE is designed to rapidly and
efficiently coordinate parallel input and output devices and the
operation of such devices within the MuSE environment. Such
efficient coordination results in immediate output in the form of
visual and auditory displays which approximate real-time responses.
26
<PAGE>
Ancillary Virtual Environment: Through the creation of a
secondary space around the user, MuSE allows the user to "travel"
throughout the virtual environment and explore data and applications
in ways that the Company believes are more consistent with human
perceptual processes than traditional computer environments. The user
may pilot a virtual craft which operates independent from any other
application, and allows movement, control of objects in the
environment, provides both navigational and managerial aids and the
display of associated information in a readily accessible manner
within the virtual craft.
Multiprocessing: MuSE is designed to support
multiprocessing capabilities at several levels, including user
interaction, device control and foreground-background operation.
Continuum permits multiple users to work and interact with each other
within a common MuSE environment and to analyze and manipulate the same
data either together with other users in the same space or independent from
other users in a parallel private environment (or multiple environments) from
which other users can be excluded or included at the discretion of the user
establishing the parallel environment. A particular user can manipulate his or
her parallel private environment according to his or her own interests and
perceptual tools, and can be joined by other users for collaboration and idea
exchange as such user deems appropriate. Similarly, a user can jump from a
private parallel environment at any time to rejoin other users in the "public"
environments.
The Company's software products can be utilized with a wide range of
hardware configurations and can be used simultaneously by more than one user
in desktop, office, laboratory or theatre settings.
In addition to its software products, the Company also offers custom
application design and development as well as consulting and support services
relating to its products.
Strategy
At present, the Company's products are designed to be used within the
high-end industrial, scientific and educational sectors of "visual computing."
These sectors are largely driven by technological advances in the areas of
computer graphics; real-time simultaneous processing of three-dimensional
("3D") graphics, audio, videos, images, and text; multiprocessing, and
increased computer processing capabilities through advanced chip technology
and enhanced graphics card capabilities. Visual computing is the use of
digital inputs to create and manipulate true-color, 3D objects, representing
complex data with extreme precision and speed, thereby enhancing human
understanding. In visual computing, a 3D, full-color window or screen replaces
the standard black-and-white, two-dimensional screen image. The use of images
makes it possible to represent complex data sets more understandably as well
as simulate real-world characteristics. Combined with appropriate input and
output devices (not provided by the Company), visual computing can be
significantly enhanced into a multi-dimensional synthetic environment. The
Company believes that, with MuSE, visual computing becomes not only
multi-dimensional but also multi-sensory and highly interactive.
27
<PAGE>
MuSE is a platform which can be used in a wide variety of industrial,
commercial, educational, entertainment and governmental applications. Each
application would be designed to meet the specific requirements of a particular
end user or a particular industry.
MuSE and Continuum were initially designed to operate on UNIX-based,
high-end graphics computers and workstations such as those marketed by SGI and
Sun. The Company has expanded the potential market for its products and services
by developing MuSE and Continuum software that operates on Windows-NT(TM)
computers with advanced graphics capabilities.
The Company believes that, in order to maximize the market potential
from its products and services, it will be necessary for the Company to enter
into strategic relationships with partners that have the financial,
technological and marketing capability of developing applications for MuSE
or distributing the Company's products and services in specific industries.
In furtherance of this strategy, in June 1998, the Company entered
into the CRI Agreement, pursuant to which CRI was given the exclusive
worldwide right to market and sell the Company's software products and
services in the oil and gas industry. See "Business -- The CRI Agreement."
Although the Company is engaged in discussion with other companies to market
MuSE to other industries, there can be no assurance that the Company can or
will be able to enter into other strategic relationships or that any agreement
with strategic partners will generate revenue or profits to the Company.
In addition, in connection with its marketing program, the Company
may enter into agreements with customers or potential strategic partners to
develop custom MuSE applications designed to address specific problems in a
particular market.
Marketing and Sales
The Company presently has a limited marketing staff, consisting of
four employees, including its Vice President of Sales and Marketing. The
Company is actively seeking to recruit and hire several additional experienced
software development and sales professionals.
The Company is seeking to enter to agreements with potential
strategic partners that have the financial, technological and marketing
capability of developing applications for MuSE or distributing the
Company's products and services in specific industries. In June 1998, the
Company entered into the CRI Agreement, which covers the exploratory and
production aspects of the oil and gas industry. The Company is initially
directing its marketing efforts to obtain strategic partners in the database,
automotive manufacturing and medical imaging industries, and from agencies of
the Federal government. There can be no assurance that the Company will be
able to enter into strategic relationships in industries other than the oil
and gas industry.
During the nine months ended June 30, 1998 and fiscal 1997 and 1996,
approximately 24%, 70% and 72%, respectively, of revenue was derived from
agencies of the Federal government. Such contracts are subject to
renegotiation or termination at the convenience of the government.
28
<PAGE>
The CRI Agreement
On June 19, 1998, the Company and CRI entered into the CRI Agreement,
pursuant to which the Company granted CRI an exclusive, worldwide
non-transferable license to market, sell and distribute the Company's products
in the oil and gas industry relating to the exploration and production of oil
and gas. The CRI Agreement has a term of three years and continues for
successive three-year terms unless either party terminates the agreement on
written notice given not later than 60 days prior to the end of the initial
term or any renewal term. Upon the occurrence of an event of default under the
CRI Agreement, the Company can terminate the CRI Agreement upon 60 days
notice.
Pursuant to the CRI Agreement, CRI is to pay the Company a $5.0
million non-refundable initial payment, of which $1.0 million has been paid
and the balance is due in two installments of $2.0 million each, which are due
on September 30, 1998 and November 30, 1998. The CRI Agreement has quarterly
quotas, which, during the initial term, range from $500,000 to $2.0 million.
The quotas are based on the Company's present price structure and are subject
to adjustment under certain conditions.
The CRI Agreement also requires the Company to hire a support team of
four persons to be dedicated to working with CRI on its sales and development
efforts. The cost of such support team is borne by the Company, except that,
under certain conditions, some or all of the cost of such persons is paid by
CRI.
The License Agreement
Pursuant to the License Agreement, the Company received (i) a limited
exclusive worldwide license to use and reproduce the MuSE software, (ii) a
license to create derivative works of MuSE software and (iii) the right to
distribute and sublicense the MuSE software. The License Agreement provides
the Company with a ten year exclusive license with respect to the MuSE
software, and thereafter provides a non-exclusive right through 2015. After
the end of such ten year period of exclusivity, the Company may request Sandia
to extend exclusivity through 2015, which determination shall be made in
Sandia's sole discretion and subject to continued royalty payments under the
License Agreement. If the License Agreement continues in force for a total of
20 years, the Company's rights under the License Agreement convert to a
paid-up non-exclusive license.
The Company is required to pay a licensing fee of $10,000 per year
until December 31, 1999 and a one-time payment of $20,000 prior to July 1999.
In addition, the Company is required to pay royalties (with an annual minimum
royalty of $20,000) for the term of the License Agreement, based on the
Company's gross revenues, less cost of goods sold and certain other expenses,
from the sale of products utilizing MuSE. Additionally, the Company paid a
one-time license fee of $400,000. See "Certain Relationships and Related
Transactions." The Company is also required to retain the services of key
personnel capable of supporting the MuSE software. In addition, the License
Agreement is terminable by Sandia in the event of a breach thereunder by the
Company (including, without limitation, due to failure to pay minimum
royalties in the annual amount of $20,000), or in
29
<PAGE>
its discretion, in the event of any such breach, Sandia may convert the
license into a non-exclusive license or otherwise reduce the Company's rights
thereunder.
As part of the License Agreement, the Company has agreed to grant
Sandia an irrevocable non-exclusive license to use the MuSE software (and
all enhancements, modifications and corrections made by the Company) and to
develop derivative works based on the MuSE software for internal use at
Sandia.
Under the License Agreement, the Company bears the risk that the
information and technology licensed from Sandia and incorporated in the
MuSE software may infringe the rights of third parties and must indemnify
Sandia in respect of any claims for copyright infringement brought against
them and arising from the development and distribution of the programs
incorporated in the MuSE software. The Company has agreed to treat the
originally licensed MuSE software as proprietary to Sandia. However,
enhancements and modifications to such original software, which have been
extensive, are considered proprietary to the Company.
Illustrative Applications
MuSE has been used in various research and development projects at
Sandia from 1991 through October 1995 and by the Company since October 1995.
During this period, various technical applications programs were developed in
pilot projects by Sandia and the Company. Most of the work on the original
MuSE software was performed by certain of the Company's present employees
who were then employees of Sandia. The applications described below represent
specific customized applications of MuSE that were developed either by
Sandia or the Company. The Company does not intend to commercialize such
applications and such applications are not an ongoing source of revenue to the
Company. The following descriptions are intended to provide only illustrations
of certain industrial or governmental applications of MuSE and are not
intended as any representation that the Company can or will be engaged to
develop any specific applications for MuSE or that any applications of
MuSE which are developed by the Company will result in revenues or profits
to the Company.
Medical - CT Scan of Human Head: This application demonstrates the
ability of MuSE to translate a standard CAT Scan and/or MRI data
from actual patients into full-color, 3D models; to present heart
rate, respiration, and other similar information as sound; and to
permit users to create cross sections for analysis and to examine
potential medical procedures.
Modeling - Dynamic Solar System: This educational/entertainment model
simulates the solar system, including 73 independently moving objects
(planets and moons). As in every MuSE application, the viewer can
control the speed of time and tether to any given object in the
environment. The user can also access certain additional NASA data
and simulations.
Simulation - Explosive Welding: MuSE was used to investigate the
simulated explosive welding of two dissimilar metals for a production
process. The data was generated from a
30
<PAGE>
complex supercomputer data-set input, which included data as to the
physical characteristics of both metals and the explosive charge.
After this data was recreated in a MuSE environment, the
client/researchers discovered, within minutes, a process flaw that
required revisions of their proposed manufacturing process.
Astronomy - Impact of Shoemaker/Levy 9 Comet on Jupiter: MuSE was
applied to understand the predicted effects of the collision of the
Shoemaker/Levy 9 Comet with Jupiter in 1995 based on simulated
supercomputer models. By placing the information in a MuSE
environment, scientists identified previously unanticipated effects
of the collision, which ultimately closely matched scientific
observations.
Manufacturing - Design and Assembly: MuSE was used to simulate the
assembly of a radioactive-waste containment vessel. The components of
the vessel can be examined and manipulated and viewed externally and
internally in the MuSE environment. The MuSE System can capture
and display CAD/CAE data, including manufacturing, factory modeling,
process simulation, assembly-line design, architecture, art and
sculpture, and special effects for entertainment, games, education,
training, biotechnology, and medicine.
Graphical Database Analysis: The database in this project contained
production-flow information obtained from roadway sensors over a one
year period at different geographical locations, the sensors measure
the type, weight, number of axles, time of detection and direction of
travel for each vehicle detected. Users were able to present the
information in visual displays. The customer quickly discovered
significant amounts of erroneous information provided by participants
as well as invalid data resulting from sensor malfunction.
Seismic Data Interpretation and Oil Reservoir Modeling: The Company
has deployed a variety of applications for customers in the oil and
seismic industries. One project yielded a simulation of an actual oil
field with four producing wells. The simulation revealed underground
oil movement relative to the wells over a two-year period and
included information about rock porosity and oil, gas and water
pressure. Another oil industry project produced a sophisticated
surface-to-data analysis tool that helps analysts create more
accurate seismic models, saving oil companies time and money and
reducing unnecessary drilling.
Electronics Component Design Validation: MuSE was used to study
the design of an electronic controller chip intended to power a set
of stepping motors prior to the manufacture of the chip. This MuSE
application integrated results from commercial CAD programs,
electronic circuit simulation models, thermal modeling software and
thermal transfer programs. The mapping of electronic circuit data to
sound permitted engineers to detect a circuit failure, correlate such
failure with overheating, isolate the design components causing the
failure and test a correction of the chip design prior to prototype
construction. MuSE resulted in several months of analysis using
conventional analytic tools to be condensed into a few hours.
31
<PAGE>
Situational Analysis and Environmental Evaluation: Topographical,
geometric, photographic, and observational information was combined
in a MuSE environment to recreate a portion of a real beach to
show dynamic lighting variation; actual weather and surf conditions;
and changes in terrain, structures, and climatic effects over a
three-month period. MuSE was used both by designers to actually
construct the model as well as by users to interact with it.
Command and Control Operations: Terrain information was used to
recreate an area in the Middle East for the purpose of studying a
hypothetical engagement between land-air and air-sea forces. This
simulation included a variety of ships, planes, and missiles and can
constantly acquire updated status information on all elements in the
scene from military simulators. The simulation permits the user to
interact with a complex, dynamically changing environment in
real-time and to assess and respond to new conditions. This
simulation included a simulated missile attack and response and used
streamers and ground shadows to help interpret movement patterns. The
ability instantly to attach to moving objects and to move anywhere
within the simulated environment greatly enhances a viewer's ability
to understand and intelligently examine and respond to rapidly
changing, complex situations.
Research and Product Development
Management believes that the Company's future success depends in
large part upon the timely enhancement of existing products and the
development of new products and applications. The Company is currently
developing new products and enhancing existing products to improve
price/performance, expand product capabilities, simplify user interfaces, help
define and support emerging industry standards, and develop interoperability
with most products and devices commonly used in the Company's targeted
markets. The Company also believes that it is beneficial to work with third
parties to accomplish these goals and has, in the past, received funding from
outside sources to develop products and applications. The Company intends to
continue to pursue such external research and development funding sources.
For the nine months ended June 30, 1998 and fiscal 1997 and 1996, the
Company's research and development expense was approximately $710,000,
$742,000, and $599,000, respectively. Except for payments related to Small
Business Innovative Research grants from the Federal government of
approximately $124,000 which was included in revenue in fiscal 1996, which
related to development of certain applications of MuSE, all research and
development was Company sponsored.
Intellectual Property Rights
The Company has been advised that Sandia has filed patent
applications for aspects of the MuSE software and holds copyrights to the
MuSE software. The Company depends on Sandia for the protection of the
intellectual property covered by the License Agreement. No assurance can be
32
<PAGE>
given that Sandia will be able to patent other inventions present in the
MuSE software or otherwise protect the proprietary intellectual property
covered by the License Agreement.
The Company has filed and is in the process of filing patent
applications for Continuum and related technologies, and it has also filed
trademark applications and logo identifications for certain of its other
products and its logo, although the Company does not currently have copyright
protection for all of its trademarks.
The Company will generally rely on a combination of trade secret,
copyright, trademark and patent law to protect its proprietary rights in the
intellectual property developed by it. Although the Company intends to provide
products utilizing the MuSE software to its customers primarily in object
code form, no assurance can be given that unauthorized third parties will not
be able to copy the MuSE software. In addition, there can be no assurance
that the Company's competitors will not independently utilize existing
technologies to develop products that are substantially equivalent or superior
to MuSE. The Company could incur substantial costs in defending itself or
its licensees in litigation brought by third parties, or in seeking a
determination of the scope and validity of the proprietary rights of others.
Competition
The Company believes that the current market for MuSE and other
visual computing software products is relatively small and fragmented.
However, based upon publicly available market research, the Company believes
that this market will grow rapidly over the next decade. The Company believes
that no single company dominates the market at the present time; however, a
number of small companies, such as Paradigm and Division, and larger
companies, such as SGI and Autodesk, are aggressively pursuing business
opportunities in this field. Many of the companies with whom the Company
competes or expects to compete have substantially greater financial resources,
research and development capabilities, sales and marketing staffs and
distribution channels and are better known than the Company.
The Company believes that the principal factors affecting the
Company's ability to compete are the availability, functionality and
architecture of its products; the quality, ease of use, performance and
functionality of the derivative applications developed and marketed by the
Company; the effectiveness of the Company in marketing and distributing its
products and services; and price. There can be no assurance that the Company
will be successful in competing with respect to any or all of these factors.
Employees
At July 31, 1998, the Company had 20 full-time and three part-time
employees. The Company believes that its relationships with its employees are
satisfactory.
33
<PAGE>
Facilities
The Company has completed the construction of a synthetic environment
laboratory to develop and demonstrate applications of MuSE. The Company has
a three year lease for approximately 8,700 square feet of office and
laboratory space in Albuquerque, New Mexico. The lease provides for rental
payments of approximately $8,600 per month.
Legal Proceedings
The Company is not involved in any pending legal proceedings.
MANAGEMENT
Directors and Executive Officers
The directors, executive officers and key employees of the Company
are as follows:
Name Age Position
- ---- --- --------
Dr. Creve Maples 56 Chairman of the Board and Chief
Technical Officer
Curtiz J. Gangi 53 President and Director
Douglas Harless 51 Vice President - Sales and Marketing
Brian Clark 40 Chief Financial Officer, Secretary and
Treasurer
Craig Peterson 35 Senior Software Development Manager
David Durgin 59 Director
Benjamin Huberman 60 Director
Edward A. Masi 51 Director
Dr. Creve Maples has been Chairman of the Board since the Company's
inception in 1995. He was the Company's President and Chief Executive Officer
from February 1997 until May 1998 and Vice President from the Company's
inception until February 1997. For more than three years prior to the
organization of the Company, Dr. Maples was employed by Sandia, where he
headed the development team responsible for the development of MuSE. Dr.
Maples is a nationally recognized expert and authority on synthetic
environments, advanced computer systems, including highly interactive graphic
systems, language extensions, parallel mass storage and applications
development. He holds a doctorate degree in nuclear science from the
University of California
34
<PAGE>
(Berkeley) and is an honors baccalaureate graduate of Massachusetts Institute
of Technology. From 1972 to 1974, he held a fellowship from the National
Science Foundation. Dr. Maples is the author of more than 100 papers and
articles on physics and computing. He is the recipient of a number of awards
including, in October 1995, the New Mexico Entrepreneur Association's Software
Inventor of the Year award for his work on MuSE.
Curtiz J. Gangi has been President and Chief Executive Officer of the
Company since May 1998 and a Director since November 1997. From September 1996
until May 1998, he served as the Company's Chief Operating Officer. Mr. Gangi
was Chief Operating Officer of Visual Information Service, Inc., a hardware
and software development company from December 1995 to September 1996, Chief
Executive Officer and President of Foton, Inc., a computer software developer
from August 1994 to December 1995, President and General Manager of Timeworks,
Inc., a software publisher from March 1992 to July 1994, Director of Marketing
and Sales of Commodore International Ltd, a computer manufacturer and software
publisher from October 1990 to January 1992. In addition, Mr. Gangi was a
member of the Chicago Board of Trade and a licensed financial commodities
broker.
Douglas Harless has been the Vice-President -- Sales and Marketing of
the Company since September 1997. Prior to becoming associated with the
Company, Mr. Harless was National Account Specialist of NCR, Inc., a computer
hardware company, from July 1996 to August 1997, Regional Sales Manager of
Maximum Strategy, Inc., a computer hardware company, from March 1995 until
June 1996, Sales Manager of Minnesota Supercomputer Center, Inc. from January
1994 until January 1995, and Director of Sales of Petroleum Industry, a
computer hardware company, from 1988 until January 1994.
Brian Clark has been Chief Financial Officer of the Company since
October 1996 and is also the Company's Treasurer and Secretary. Prior to
becoming associated with the Company, Mr. Clark was an executive with Optimax
Securities Corporation, a corporation engaged in investment banking, from 1995
until October 1996; Chief Financial Officer of Softcop International, a
software development company, from 1993 to 1995; Manager of Business
Development for Royal Insurance Company of Canada, from 1989 to 1993; and a
Chartered Accountant with Deloitte & Touche from 1985 to 1989.
Craig Peterson has been the Company's Senior Software Development
Manager since the Company's inception. For more than three years prior to his
involvement with the Company, Mr. Peterson was Senior Technician of Synthetic
Environment Laboratory at Sandia, where he was a principal developer of the
MuSE software with Dr. Maples.
David L. Durgin has been a Director of the Company since its
inception. Mr. Durgin was also the Company's Executive Vice President from the
Company's inception until April 1997. He is a founder, executive officer and
director of Quatro Corporation ("Quatro"), Technology Business Associates Inc.
("TBA"), a technology commercialization firm, and a founder, director and past
chairman of Industry Network Corporation, a non-profit economic development
company.
35
<PAGE>
Mr. Durgin was previously a Senior Vice President with Booz Allen & Hamilton,
Inc. and a Vice President of BDM International, a leading defense contractor.
Benjamin Huberman has been a Director of the Company since its
inception. Since 1990, Mr. Huberman has been the President of the Huberman
Consulting Group, based in Washington, D.C., and consults on technology
issues, including the areas of aerospace, electronics, and nuclear power. Mr.
Huberman is a member of the Chief of Naval Operations' Executive Panel, which
provides strategic and topical assistance to the Chief of Naval Operations.
Mr. Huberman is a past member of the Secretary of Energy's Advisory Board and
of the Galvin Task Force evaluating alternative futures for the national
laboratories of the Department of Energy. From 1977 to 1980, he was Associate
Director of the White House Office of Science and Technology Policy ("OSTP")
and a member of the National Security Council Staff. In 1981, Mr. Huberman
served as Deputy Director of OSTP.
Edward A. Masi has been a Director of the Company since January 1997.
Since June 1997, Mr. Masi has been a private consultant for a variety of
companies. From March 1992 until June 1997, Mr. Masi was a corporate Vice
President at Intel Corporation, responsible for the management of the
super-computer business and the commercial server product development
division. From May 1980 until June 1992, Mr. Masi was Executive Vice President
of Sales, Marketing, and Service at Cray Research. Prior to his work for Cray,
Mr. Masi held various sales and marketing positions at IBM, where he began his
career.
There is no family relationship among any of the Company's directors
and executive officers. There are no arrangements or understandings pursuant
to which any person has been elected as a director or executive officer.
The Company has agreed that, during the five-year period following
the date of this Prospectus, the Underwriter will have the right to designate
one member to the Company's Board of Directors. See "Underwriting."
Executive Compensation
The following tables set forth the compensation earned by the
Company's Chief Executive Officer and all other executive officers earning in
excess of $100,000 for the fiscal years ended September 30, 1997 and 1996.
36
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Securities
Name and Principal Position Year Salary Underlying Options
- --------------------------- ---- ------ ------------------
<S> <C> <C> <C>
Dr. Creve Maples, Chief Executive Officer and 1997 $120,000 --
Chairman of the Board 1996 $100,000 --
Curtiz J. Gangi, President 1997 $112,500 361,842
Brian Clark, Chief Financial Officer, Secretary 1997 $120,000 197,368
and Treasurer
</TABLE>
The information in the table below sets forth each grant and exercise
of stock options during the last completed fiscal year by each of the named
executive officers and the fiscal year-end value of unexercised options.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Percentage of
Number of total options
securities granted to
underlying employees in Exercise or base Expiration
Name options granted fiscal year price date
- ---- --------------- ----------- ----- ----
<S> <C> <C> <C> <C>
Dr. Creve Maples -- -- -- --
Curtiz J. Gangi 361,842 36% $2.50(1) 01/07
Brian Clark 197,368 20% $2.50(1) 01/07
</TABLE>
- --------------------
(1) Exercise price of options granted under the Company's Stock Option
Plan were repriced from $7.60 to $2.50 in April 1998.
The table below sets forth information with respect to option
exercises during the last fiscal year and the value of all options held at
fiscal year end for each of the named executive officers. No SARs have been
granted by the Company to date and no options were exercised by the named
executive officers during fiscal 1997. Options granted in fiscal 1997 were not
deemed to be in-the-money at the end of such fiscal year.
37
<PAGE>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of securities Value of
Shares underlying exercised unexercised in-the-
acquired options at FY-end money options at
on Value exercisable/ FY-end exercisable/
Name exercise realized unexercisable unexercisable
- ---- -------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Dr. Creve Maples -- -- -- --
Curtiz J. Gangi -- -- 153,509/208,333 --
Brian Clark -- -- 90,460/106,908 --
</TABLE>
Employment Agreements
The Company has entered into employment agreements (each an
"Employment Agreement" and collectively, the "Employment Agreements") with
each of Dr. Creve Maples, Curtiz Gangi, Brian Clark and Douglas Harless (each,
an "Executive" and collectively, the "Executives").
Dr. Creve Maples has entered into a three year Employment Agreement
with the Company which commenced on June 1, 1998, to serve as a Chief
Technical Officer of the Company at an annual base salary of $150,000. Dr.
Maples is entitled to receive a bonus of up to $65,000 upon the Company
achieving certain performance objectives. Prior to entering into such
Employment Agreement, Dr. Maples received an annual salary of $120,000. In
connection with his Employment Agreement, in August 1998, Dr. Maples received
options to purchase 117,500 shares of Common Stock of the Company at an
exercise price of $7.50 per share, which vests as follows: 30,000 shares on
June 1, 1999, 37,500 shares on June 1, 2000, and 50,000 shares on June 1,
2001.
Curtiz Gangi has entered into a three year Employment Agreement with
the Company which commenced on June 1, 1998, to serve as President at an
annual base salary of $215,000. Mr. Gangi is also entitled to receive a bonus
of up to $134,000 upon the Company achieving certain performance objectives.
Prior to entering into such Employment Agreement, Mr. Gangi received an annual
salary of $150,000. In connection with his Employment Agreement, in August
1998, Mr. Gangi received options to purchase 375,000 shares of Common Stock of
the Company at an exercise price of $7.50 per share, which vests as follows:
100,000 shares on June 1, 1999, 125,000 shares on June 1, 2000 and 150,000
shares on June 1, 2001. Upon the closing of this Offering, Mr. Gangi will
receive a five-year loan in the amount of $150,000 at 5% annual interest in
connection with his relocation to New Mexico. The loan will be secured by
vested stock options having a value equal to the principal amount of the loan.
Douglas Harless has entered into a three year Employment Agreement
with the Company which commenced on June 1, 1998, to serve as Vice-President
- -- Sales and Marketing at an annual
38
<PAGE>
base salary of $150,000. Mr. Harless will receive commissions under the a
sales commission plan established by the Board, which commissions range from
2% to 6.5% of revenues generated. Prior to entering into such Employment
Agreement, Mr. Harless received an annual salary of $120,000. In connection
with his Employment Agreement, in August 1998, Mr. Harless received options to
purchase 117,500 shares of Common Stock of the Company at an exercise price of
$7.50 per share, which vests as follows: 30,000 shares on June 1, 1999, 37,500
shares on June 1, 2000 and 50,000 shares on June 1, 2001. Upon the closing of
this Offering, Mr. Harless will receive a five year loan in the amount of
$75,000 at 5% annual interest in connection with his relocation to New Mexico.
The loan will be secured by vested stock options having a value equal to the
principal amount of the loan. In consideration of services rendered by Mr.
Harless in connection with the CRI Agreement and the sale of securities to
CRI, options to purchase 197,369 shares of Common Stock previously granted to
Mr. Harless became exercisable at an exercise price of $7.60 per share and the
Company paid him a commission of approximately $520,000. In 1997, Mr. Harless
also purchased 11,514 shares of Common Stock for $87,500. Mr. Harless borrowed
the purchase price from the Company, which loan is secured by a pledge of such
shares and must be repaid out of any net proceeds received upon the
disposition of any securities held by Mr. Harless.
Brian Clark has entered into a three year Employment Agreement with
the Company which commenced on June 1, 1998, to act as Chief Financial Officer
at an annual base salary of $150,000. Mr. Clark is also entitled to receive a
bonus of up to $65,000 upon the Company achieving certain performance
objectives. Prior to entering into such Employment Agreement, Mr. Clark
received up to $10,000 a month under a Consultant Service Agreement. In
connection with his Employment Agreement, in August 1998, Mr. Clark received
options to purchase 117,500 shares of Common Stock of the Company at an
exercise price of $7.50 per share, which vests as follows: 30,000 shares on
June 1, 1999, 37,500 shares on June 1, 2000 and 50,000 shares on June 1, 2001.
Upon the closing of this Offering, Mr. Clark will receive a five year loan in
the amount of $75,000 at 5% annual interest in connection with his relocation
to New Mexico. The loan will be secured by vested stock options having a value
equal to the principal amount of the loan.
Under the Employment Agreements, if the Executive is terminated by
the Company other than "for cause" (as defined in each Employment Agreement),
or if the Executive dies or becomes permanently disabled, all stock options of
the Executive shall immediately vest upon such termination and such Executive
shall receive severance payments in an amount equal to one year's base salary
in the case of Messrs. Gangi and Clark, two year's base salary in the case of
Dr. Maples, and either three months base salary if termination occurs prior to
December 1, 1998 or one year's base salary if termination occurs thereafter in
the case of Mr. Harless. Each of the Employment Agreements also contain
provisions relating to severance payments equal to the salary and bonus for
the remainder of the employment term plus an additional one year's base salary
(two year's base salary in the case of Dr. Maples) in the event of a change in
control (as defined in the Employment Agreement).
Each of the Employment Agreements prohibits disclosure of proprietary
and confidential information regarding the Company and its business to anyone
outside the Company both during and
39
<PAGE>
subsequent to employment. In addition, each Executive has agreed, for the
duration of his employment with the Company and for a period of one year
thereafter, if the Executive is terminated "for cause" (as defined in the
Employment Agreement) or resigns, not to engage in any competitive business
activity.
The Employment Agreements provide that the Company will indemnify the
Executive to the fullest extent permitted by the laws of Delaware and in
accordance with the Company's By-Laws and Certificate of Incorporation.
Directors' Compensation
The Company pays each non-employee director a fee of $500 for
attendance at each board meeting and reimburses its non-employee directors for
expenses incurred in connection with their attendance at such meetings.
Non-employee directors receive options to purchase 5,000 shares of Common
Stock upon initial election to the Board of Directors and options to purchase
8,000 shares of Common Stock upon re-election at each annual meeting of
stockholders, exercisable after one-year at an exercise price equal to the
fair market value on the date of grant. Additionally, current non-employee
directors, Messrs. Durgin, Masi and Huberman, shall each receive options to
purchase 5,000 shares of Common Stock upon the consummation of this Offering,
exercisable after one year at an exercise price equal to $7.50 per share.
Stock Option Plans
The Company's Board of Directors and stockholders adopted the 1995
Stock Option Plan (the "1995 Plan") on November 10, 1995, and the 1996 Stock
Option Plan (the "1996 Plan") on November 7, 1996, to induce certain
individuals or entities providing service to the Company to remain in the
employ of, or continue to serve as directors of, or as independent consultants
to, the Company, and to attract new employees, consultants and non-employee
directors. The terms of the 1995 Plan and the 1996 Plan (together, the
"Plans") are generally identical, except as otherwise indicated.
The Plans are administered by the Board of Directors, which has the
exclusive power to select the individuals or entities eligible for option
grants (each a "Participant"), and to determine the terms and conditions of
any options granted, including but not limited to the option price, method of
exercise and the term during which the options may be exercised. The 1995 Plan
was terminated on January 7, 1997 as to the granting of new options. As of the
date of this Prospectus, options to purchase 92,105 shares of Common Stock
have been granted under the 1995 Plan and options to purchase 2,266,644 shares
of Common Stock (of which options to purchase 627,500 shares were granted in
connection with the Employments Agreements and are subject to stockholder
approval in connection with amendments to the 1996 Plan) have been granted
under the 1996 Plan. The 1996 Plan will terminate not later than November 1,
2005. In August 1998, the Company's Board of Directors approved amendments to
the 1996 Plan, subject to stockholder approval, to increase the number of
additional shares subject to options available for grant by 3,500,000 shares
to 5,148,026 shares (of which options to purchase 2,266,644 shares are
outstanding).
40
<PAGE>
As a result of the 1-for-3.04 reverse stock split in March 1998, the
exercise price of options granted under the Plans increased from $2.50 to
$7.60. In April 1998, the Board of Directors of the Company repriced all
options under the Plans and reduced the exercise price from $7.60 to $2.50,
resulting in a non-cash imputed compensation expense of $948,000.
See-"Management's Discussion and Analysis of Financial Conditions and Results
of Operations."
Additional shares of Common Stock may become available for grant
under the Plans as a result of cancellations or expiration of outstanding
options. Options granted under the Plans may be non-qualified options or
options qualifying as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The initial
exercise option price of each incentive stock option granted under the Plans
shall be not less than the fair market value (110% of the fair market value if
the grant is to an employee owning more than 10% of the outstanding Common
Stock) of the Common Stock subject to the option. The option price of each
non-qualified option shall not be less than 85% of the fair market value of
the Common Stock subject to the option.
No option granted pursuant to the Plans may be exercised more than
ten years after the date of grant, except that incentive stock options granted
to Participants who own more than 10% of the total combined voting power of
all classes of stock of the Company at the time the incentive stock option is
granted may not be exercised after five years after the date of grant. No
Participant may be granted incentive stock options which are exercisable for
the first time in any one calendar year with respect to Common Stock having an
aggregate fair market value in excess of $100,000 on the date of grant, the
options vest over a three year period (unless otherwise determined by the
Board of Directors), commencing on the first anniversary date of the grant. No
option granted under the Plans is transferable by the optionee other than by
death or to immediate family members.
Generally, an option may be exercised only while the recipient is in
the active employ or service of the Company, or within 30 days after
termination of a participant's employment or service as a director other than
by reason of retirement or death, or within one year after termination of
employment or service by reason of death, or within 90 days after termination
of a participant's termination of employment or service by reason of
retirement. In the event of the death or retirement of an optionee, each
option granted to him shall become immediately exercisable in full.
Limitation on Liability
The Company's Certificate of Incorporation eliminates the personal
liability of directors for monetary damages to the corporation for breach of
fiduciary duty, except for liability for (i) breaches of the director's duty
of loyalty to the Company or its stockholders; (ii) acts or omissions not in
good faith or involving intentional misconduct or knowing violations of law;
(iii) the payment of unlawful dividends or unlawful stock repurchases or
redemptions; or (iv) transactions from which the director received an improper
personal benefit.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The Company's authorized capital stock consists of 50,000,000 shares
of Common Stock of which 8,763,893 are currently outstanding. After giving
effect to this Offering, there will be 9,963,893 shares of Common Stock issued
and outstanding (assuming no exercise of the Warrants). The following table
sets forth information as of the date hereof with respect to the beneficial
ownership of the outstanding Common Stock of the Company by each director, all
5% stockholders of the Company and all officers and directors as a group.
Unless otherwise indicated, each person has the sole voting and sole
investment power and direct beneficial ownership of the shares:
<TABLE>
<CAPTION>
Percent of Common Stock
Outstanding
----------------------------------------------
Number of
Name of Beneficial Owner Shares(1) Before the Offering After the Offering
- ------------------------ ------------- ------------------- ------------------
<S> <C> <C> <C>
Creve Maples (2) 1,261,514 13.9% 12.3%
1601 Randolph SE
Albuquerque, NM 87106
Continuum Resources International 1,000,000 11.4% 10.0%
ASA
2424 Wilcrest
Houston, TX 77042
Craig Peterson (3) 745,067 8.3% 7.3%
1601 Randolph SE
Albuquerque, NM 87106
Arlan K. Andrews, Sr. 475,658 5.4% 4.8%
1117 Wagonwheel, SE
Albuquerque, NM 87123
Thomas E. Murphy 475,658 5.4% 4.8%
3200 Don Quixote, NW
Albuquerque, NM 87104
Curtiz J. Gangi (4) 348,873 3.8% 3.4%
David Durgin (5) 323,028 3.7% 3.2%
Douglas Harless (6) 269,190 3.0% 2.6%
Brian Clark (7) 230,265 2.6% 2.3%
Benjamin Huberman (8) 83,553 * *
Edward A. Masi (9) 8,442 * *
Directors and executive officers as a group 3,270,842 32.2% 28.8%
(7 persons) (10)
</TABLE>
- --------------------
* Less than one percent.
(1) Includes currently exercisable options and warrants to purchase
shares of Common Stock issuable upon the exercise of such options and
warrants for each named person.
(2) Includes 310,527 shares of Common Stock issuable upon the exercise of
options.
42
<PAGE>
(3) Includes 200,000 shares of Common Stock issuable upon the exercise of
options.
(4) Includes 348,873 shares of Common Stock issuable upon the exercise of
options. Does not include 104,166 shares subject to options exercisable
through September 1999.
(5) Includes 240,790 shares of Common Stock held by Quatro Corporation, of
which Mr. Durgin is an officer and director, 57,566 shares of Common
Stock held by Technology Business Associates, Inc., of which Mr. Durgin
is a principal, and 24,672 shares of Common Stock issuable upon the
exercise of options.
(6) Includes 257,676 shares of Common Stock issuable upon the exercise of
options.
(7) Represents shares of Common Stock issuable upon the exercise of options.
(8) Includes 16,448 shares of Common Stock issuable upon the exercise of
options.
(9) Represents shares of Common Stock issuable upon the exercise of options.
(10) Includes an aggregate of 1,873,029 shares of Common Stock and 1,397,813
shares of Common Stock issuable upon the exercise of options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Organization of the Company; Transactions with Viga
The Company was organized in October 1995. Prior to the organization
of the Company, Dr. Creve Maples, Thomas Murphy, Arlan Andrews, David Durgin
and Craig Peterson and certain minority stockholders formed Viga for the
purpose of entering into the License Agreement with Sandia.
In October 1995, the Company issued, for nominal consideration,
6,694,080 shares of Common Stock to the stockholders of Viga, of which
950,987; 679,276; 475,758; 475,658; 339,474 and 67,105 shares were issued to
Dr. Maples and Messrs. Peterson, Murphy, Andrews, Durgin and Huberman,
respectively. Dr. Maples and Messrs. Peterson, Murphy, Andrews, Durgin and
Huberman may be deemed founders of the Company.
In December 1995, Viga agreed to transfer it assets, including the
License Agreement to the Company, which required the consent of Sandia.
Pending such transfer, Viga granted the Company a sublicense to the MuSE
technology. On July 15, 1996, the assignment was effected, and the sublicense
was terminated.
The purchase price for the Viga assets was $1,152,000 (exclusive of
assumed liabilities), reflecting $752,000 of computer and office equipment and
a $400,000 license fee for the sublicense of the MuSE technology. The Company
issued notes in the amounts of $222,670, representing the difference between
assets acquired and liabilities assumed, and $400,000, representing the
sublicense fee for the MuSE technology. The two notes were paid, without
interest, in 1996 from the proceeds
43
<PAGE>
of the 1996 Private Placement. See "Financings." In 1997, Viga agreed to
reduce the sublicense fee by $55,000, for which Viga issued its 6.5% note for
such amount due November 2001.
During fiscal 1996, the Company paid Viga $15,250 in license fees and
royalties pursuant to the sublicense agreement. In addition, during fiscal
1996, Viga advanced the Company $193,000, and the Company advanced Viga
$23,628 in separate transactions. All of such advances were interest free and
were repaid by September 30, 1996.
Consulting Relationships
The Company entered into a consulting agreement with "TBA", a
minority stockholder of the Company. David Durgin, a director of the Company
is the founder, a director and executive officer of TBA. The Company received
executive and marketing consulting services and marketing support services
from TBA. During 1996, the Company paid $51,326 to TBA under the agreement,
which expired on September 30, 1996.
The Company entered into a consulting agreement with Quatro, a
minority stockholder of the Company, pursuant to which Quatro provided
accounting services, financial and business support, as well as executive,
marketing and manufacturing consulting services to the Company. David Durgin a
director of the Company, is also a stockholder, director and executive officer
of Quatro. During fiscal 1997 and 1996, the Company paid $19,324 and $33,564,
respectively, to Quatro for these services. This agreement expired on
September 30, 1997 and restricts Quatro from competing with the Company until
September 30, 1998.
Other Transactions
In connection with his employment with the Company in September 1997,
Mr. Harless purchased 11,514 shares of Common Stock for a purchase price of
$7.60 per share, or an aggregate of $87,500. Mr. Harless borrowed the purchase
price for such shares from the Company and issued a non-recourse 5% promissory
note to the Company. The loan is secured by a pledge of such shares, and any
proceeds received by Mr. Harless upon the disposition of any securities owned
by him must be remitted to the Company to repay such loan.
Pursuant to his employment agreement, in connection with the CRI
Agreement, Mr. Harless received options to purchase 197,369 shares of Common
Stock at an exercise price of $7.60 per share. Additionally, in connection
with the CRI Private Placement, Mr. Harless received a commission of $520,000
in accordance with the Company's sales commission plan.
Upon the closing of this Offering, Messrs. Gangi, Clark and Harless
will receive five year loans from the Company in the amounts of $150,000,
$75,000 and $75,000, respectively, in connection with their relocation to New
Mexico. The loans will bear interest at the rate of 5% per annum and will be
secured by the pledge of vested stock options having a value equal to the
principal amount of the loan.
44
<PAGE>
FINANCINGS
1995 Private Placement
In December 1995, the Company sold, to four accredited investors, an
aggregate of four investment units (the "1995 Units") for $250,000 per 1995
Unit. Each 1995 Unit consisted of $249,900 face amount of 10% one-year
mandatory convertible promissory notes (the "1995 Notes") and warrants (the
"1995 Warrants") to purchase 8,224 shares of Common Stock at a price of $7.60
per share. The net proceeds of $900,000 were used to pay certain liabilities
assumed in connection with the acquisition of assets from Viga and to finance
the Company's operations. The 1995 Notes, which were unsecured, were
convertible into one share of Common Stock for each $7.60 face amount of the
1995 Note. Investors Associates, Inc. ("IAI") acted as placement agent for the
1995 Private Placement and received a selling commission of $100,000, and
warrants to purchase up to 16,448 shares of Common Stock at $7.60 per share.
In April 1996, the 1995 Notes were converted into an aggregate of 131,579
shares of Common Stock.
1996 Private Placement
From April through September 1996, the Company sold an aggregate of
250,921 shares of Common Stock at $7.60 per share to 21 accredited investors
(the "1996 Private Placement"). The net proceeds from the 1996 Private
Placement were approximately $1,700,000, which was used to pay certain notes
to Viga and for working capital. IAI acted as placement agent for the 1996
Private Placement, for which it received a fee of $190,700 and warrants to
purchase 121,710 shares of Common Stock at $7.60 per share. The warrants
expire five years from the date of issuance, except that warrants to purchase
16,448 shares expire three years from the date of issuance.
June 1997 Private Placement
In June 1997, the Company received net proceeds of $1,113,750 from
the issuance of notes (the "June 1997 Notes") in the principal amount of
$1,237,500 to 15 accredited investors (the "1997 Private Placement"). All of
the June 1997 Notes, and accrued interest thereon, were paid from the proceeds
of the April 1998 Private Placement (except $300,000 of such June 1997 Notes,
which were converted into equity on the same terms as the April 1998 Private
Placement). IAI acted as placement agent in connection with the placement of
the June 1997 Notes and received commissions equal to $123,750.
December 1997 Private Placement
In December 1997, in a private placement, the Company sold to 18
accredited investors, units consisting of 8% promissory notes (the "December
1997 Notes") in the aggregate principal amount of $875,000 and an aggregate of
57,566 shares of Common Stock (the "December 1997 Shares"). The net proceeds
to the Company from the issuance and sale of the December 1997 Notes and
December 1997 Shares was approximately $688,000. The December 1997 Notes are
payable one year from the date of issuance, together with accrued interest
thereon. The Company will use
45
<PAGE>
a portion of the proceeds of this Offering to pay the December 1997 Notes,
together with accrued interest thereon. See "Use of Proceeds." The Company
engaged Worthington Capital Group, Inc. ("Worthington") to act as placement
agent in connection with the December 1997 Private Placement. As compensation
for its services as placement agent, Worthington received a fee of $138,750.
See "Description of Securities."
April 1998 Private Placement
In April and May 1998, the Company sold to 14 accredited investors,
an aggregate of 35.5 investment units, each unit consisting of 10,000 shares
of Common Stock and a warrant to purchase 10,000 shares of Common Stock, at a
per unit price of $45,000 (the "April 1998 Private Placement"). The net
proceeds of $1,372,250 were used to pay a portion of the June 1997 Notes. The
Company used the Underwriter to act as Placement Agent in connection with the
April 1998 Private Placement. As compensation for Placement Agent, the
Placement Agent received a commission of 10% of the gross proceeds from the
sale of the units. In addition, the Company reimbursed the Placement Agent for
its expenses incurred in connection with the April 1998 Private Placement
offering of $25,000. Pursuant to the terms of the April 1998 Warrants, upon
completion of this Offering, the April 1998 Warrants will be automatically
converted into Warrants. All references in this Prospectus to the warrants
issued in the April 1998 Private Placement assume such automatic conversion.
The Company has given the holders of the Common Stock and warrants issued in
the April 1998 Private Placement registration rights with respect to such
shares and warrants and the shares of Common Stock issuable upon exercise of
such warrants.
CRI Private Placement
In July 1998, the Company sold 1,000,000 shares of Common Stock and
CRI Warrants to purchase an additional 1,000,000 shares of Common Stock to CRI
for an aggregate purchase price of $8,000,000 (the "CRI Private Placement").
The CRI Warrants are exercisable at $9.60 per share commencing on the date
hereof through June 30, 2003. The CRI Warrants are redeemable by the Company
at any time after December 31, 1998 at $.01 per CRI Warrant upon 30 days prior
notice, provided that (i) the following criteria are satisfied: (A) with
respect to redemption of up to 50% of the CRI Warrants, the average closing
price of the Common Stock as listed on the Nasdaq Stock Market (or other
securities exchange) is at least $14.40 for the twenty day period ending at
least two days before the redemption date, or (B) with respect to redemption
of up to 100% of the CRI Warrants, the average closing price of the Common
Stock as listed on the Nasdaq Stock Market (or other securities exchange) is
at least $19.20 for the twenty day period ending at least two days before the
redemption date, and (ii) the Company is engaged in a subsequent underwritten
public offering of its securities in which the managing underwriter thereof
requires redemption of the CRI Warrants. CRI received both demand and
piggyback registration rights in connection with such purchase commencing one
year from consummation of this Offering. CRI also has the right to send an
observer to all Board meetings.
46
<PAGE>
SALES BY SELLING SECURITYHOLDERS
This registration statement also related to the sale by the Selling
Securityholders of an aggregate of 423,881 shares of Common Stock and 423,881
Warrants as well as the 423,881 shares of Common Stock issuable upon exercise
of the Warrants. With respect to the shares of Common Stock issuable upon
exercise of the Warrants, the registration statement covers both the issuance
of the Common Stock upon such exercise and the subsequent sale by the holders
thereof. The sale of such securities by the Selling Securityholders is to be
made by a separate Prospectus dated the date of this Prospectus.
The Selling Securityholders have advised the Company that any sales
of the outstanding shares of Common Stock and Warrants and any shares of
Common Stock which are issuable upon exercise of the Warrants may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholder) on the Nasdaq SmallCap Market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices or in negotiated transactions, a combination of such methods of sale or
otherwise. In addition, Selling Securityholders may transfer any of the shares
of Common Stock or Warrants covered by this registration statement by gift.
The Selling Securityholders have agreed that they will not sell any of their
Securities pursuant to this Registration Statement prior to one year from the
date of this Prospectus without the consent of the Underwriter. Any donee of
the securities would be subject to the same restriction.
The Selling Securityholders may effect such transactions by selling
such securities directly to purchasers, through broker-dealers acting as
agents for the Selling Securityholders or to broker-dealers who may purchase
Warrants or shares of Common Stock as principals and thereafter sell the
securities from time to time on the Nasdaq SmallCap Market, in negotiated
transactions or otherwise. In any such transaction, the Underwriter may act as
broker-dealer for the Selling Securityholder and/or for the purchasing party
or the Underwriter may purchase shares of Common Stock or Warrants for its own
account although the Underwriter has no agreement or understanding, either
formal or informal, with any Selling Securityholder with respect to any such
transactions. Such broker-dealers, if any, including the Underwriter, may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholder and/or the purchasers from whom such broker-dealer
may act as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary
commissions).
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Security Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
47
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 50,000,000 shares
of Common Stock of which 8,763,893 are currently outstanding. The following
description of the Common Stock and certain provisions of the Company's
Certificate of Incorporation, as amended (the "Certificate") and its By-Laws
(the "By-Laws") is a summary and is qualified in its entirety by reference to
the provisions of the Certificate and the By-Laws, copies of which are
available from the Company upon request. After giving effect to this Offering,
there will be 9,963,893 of Common Stock issued and outstanding.
Common Stock
The holders of the outstanding shares of Common Stock are entitled to
one vote per share, and are entitled to receive dividends as and when declared
by the Board of Directors out of funds legally available therefor. The holders
of the outstanding shares of Common Stock have no preemptive or cumulative
voting rights and no rights to convert their shares of Common Stock into any
other securities. All of the outstanding shares of Common Stock are, and the
shares of Common Stock being offered by the Company hereby will be, fully paid
and non assessable. On liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to receive pro rata the net assets of
the Company remaining after the payment of all creditors and liquidation
preferences, if any.
Class A Redeemable Common Stock Purchase Warrants
The holder of each Warrant is entitled to purchase one share of
Common Stock at an aggregate exercise price $9.60 per share. The Warrants are
exercisable immediately following the date of this Prospectus, and terminate
five years from the date of this Prospectus. Holders of the Warrants will only
be able to exercise the Warrants if (a) a current prospectus under the
Securities Act relating to the shares of Common Stock issuable upon exercise
of the Warrants is then in effect, and (b) such securities are qualified for
sale or exemption from qualification under the applicable securities laws of
the states in which the various holders of Warrants reside.
Commencing one year from the date of this Prospectus, or earlier with
the consent of the Underwriter, the Warrants are subject to redemption by the
Company, on not more than 60 nor less than 30 days' written notice, at a price
of $.01 per Warrant, if the average closing price per share of the Common
Stock is at least $12.00, subject to adjustment, for the twenty day period
ending not earlier than five days prior the date the Warrants are called for
redemption. Holders of Warrants will automatically forfeit their rights to
purchase the shares of Common Stock issuable upon exercise of such Warrants
unless the Warrants are exercised before the close of business on the business
day immediately prior to the date set for redemption. All of the outstanding
Warrants must be redeemed if any are redeemed. A notice of redemption shall be
mailed to each of the registered holders of the Warrants by first class,
postage prepaid, within five business days (or such longer period to which the
Underwriter may consent) after the Warrants are called for redemption, but no
earlier than the sixtieth nor later than the thirtieth day before the date
fixed for redemption. The notice of
48
<PAGE>
redemption shall specify the redemption price, the date fixed for redemption,
the place where the Warrant certificates shall be delivered and the redemption
price to be paid, and that the right to exercise the Warrants shall terminate
at 5:00 p.m. (New York City time) on the business day immediately preceding
the date fixed for redemption. The Warrants can only be redeemed if, on the
date the Warrants are called for redemption, there is an effective
registration statement covering the shares of Common Stock issuable upon
exercise of the Warrants and the Common Stock is listed on the Nasdaq Stock
Market or such other stock market which is acceptable to the Underwriter.
The Warrants may be exercised upon surrender of the certificate(s)
therefor on or prior to 5:00 p.m. New York City time on the expiration date of
the Warrants or, if the Warrants are called for redemption, the day prior to
the redemption date at the offices of the Company's warrant agent (the
"Warrant Agent") with the form of "Election to Purchase" on the reverse side
of the certificate(s) filled out and executed as indicated, accompanied by
payment of the full exercise price for the number of shares as to which the
Warrant is being exercised.
The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events, such
as stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events. The holder of the
Warrants will not possess any rights as a stockholder of the Company unless
and until the holder exercises the Warrants.
Other Warrants
In addition to the Warrants, there are also outstanding warrants to
purchase 445,362 shares of Common Stock at an exercise price of $7.60 per
share, which expire as follows: warrants to purchase 49,342 shares in December
1998; warrants to purchase 6,579 shares in October 1999; warrants to purchase
65,789 shares in December 1999; and warrants to purchase 323,652 shares in
April 2001. Additionally, the CRI Warrants entitle CRI to purchase 1,000,000
shares of Common Stock at $9.60 per share. The CRI Warrants expire on June 30,
2003. Such warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price in certain events, such
as stock dividends, stock splits, mergers, sale of substantially all of the
Company's assets, and for other extraordinary events. The holders of certain
of these warrants have registration rights with respect to the underlying
shares of Common Stock. See "Financings" for information relating to the
issuance of certain of these warrants. See "Underwriting" with respect to the
Underwriter's Unit Purchase Option.
The holders of the outstanding warrants have been given the
opportunity to profit from a rise in the market for the shares of the
Company's Common Stock with a resulting dilution in the interests of
stockholders. The holders of the outstanding warrants can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain equity capital, if then needed, by a new equity offering on terms more
favorable than those provided by the outstanding warrants. Such facts may
adversely affect the terms on which the Company could obtain additional
financing.
49
<PAGE>
Dividend Policy
The Company presently intends to retain future earnings, if any, in
order to provide funds for use in the operation and expansion of its business
and accordingly does not anticipate paying cash dividends on its Common Stock
in the foreseeable future.
Transfer Agent and Warrant Agent
The transfer agent for the Common Stock and Warrant Agent for the
Warrants is American Stock Transfer & Trust Company, 40 Wall Street, New York,
New York 10005.
Anti-Takeover Protections
The Company is a Delaware corporation, and the Delaware General
Corporation Law contains certain provisions applicable to the Company which
may have the effect of preventing a non-negotiated change of control of the
Company. These provisions, among other things, prevent anyone who owns 15% or
more of the outstanding voting stock of the Company or who is an affiliate or
associate of the Company and owned 15% or more of the outstanding shares of
stock of the Company at any time within the prior three years (in either case,
an "interested stockholder") from engaging in any business combination with
the Company for a period of three years after becoming an interested
stockholder, unless (i) prior to the date the stockholder became an interested
stockholder, the Board of Directors approved either the business combination
or the transaction which resulted in the stockholder becoming an interested
stockholder; (ii) the interested stockholder, while acquiring his or her 15%,
acquires at least 85% of the outstanding shares, excluding shares held by
directors who are also officers and certain shares held under employee stock
option plans; or (iii) on or subsequent to such date, the business combination
is approved by the Company's Board of Directors and by the affirmative vote of
two-thirds of the shares voting at a stockholders' meeting, excluding shares
held by the interested stockholder.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering the Company will have
9,963,893 shares of Common Stock outstanding (10,143,893 shares if the
Underwriter's over-allotment option is exercised in full), excluding shares
issuable upon the exercise of the outstanding stock options and warrants and
the Underwriter's Unit Purchase Option. Of these outstanding shares, the
1,200,000 shares offered hereby (1,380,000 if the Underwriter's over-allotment
option is exercised in full) will be freely tradeable without restriction or
further registration under the Securities Act, except for any shares purchased
by an "affiliate" of the Company (in general, a person who has a control
relationship with the Company) which will be subject to the limitations of
Rule 144 adopted under the Securities Act. All of the remaining shares of
Common Stock are deemed to be "restricted securities," as that term is defined
under Rule 144 promulgated under the Securities Act and will be eligible for
sale under Rule 144 within 90 days of the date of this Prospectus, provided,
however, that certain of such shares are subject to certain contractual
restrictions on the sale or transfer of
50
<PAGE>
such shares for a period of twelve months from the date of this Prospectus,
without the prior written consent of the Underwriter.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or person whose shares are aggregated), who has owned restricted
Common Stock beneficially for at least one year is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% (99,638 shares after the Offering) of the total number of outstanding
shares of the same class or, if the Common Stock is quoted on the Nasdaq Stock
Market, the average weekly trading volume during the four calendar weeks
preceding the sale. A person who has not been an affiliate of the Company for
at least the three months immediately preceding the sale and who has
beneficially owned such shares of Common Stock for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
The directors, officers and major stockholders of the Company, have
agreed not to sell or otherwise dispose of their Common Stock (or securities
convertible into Common Stock) for a period of twelve months from the
completion of this Offering without the prior written consent of the
Underwriter. In addition, the Underwriter has received certain registration
rights under the Securities Act with respect to the Underwriter's Unit
Purchase Option and the Common Stock issuable upon exercise of the
Underwriter's Unit Purchase Option. See "Underwriting."
UNDERWRITING
HD Brous & Co., Inc. (the "Underwriter") has agreed, on the terms and
subject to the conditions of the Underwriting Agreement, to purchase from the
Company, and the Company has agreed to sell to the Underwriter, 1,200,000
Units. The Underwriter is committed to purchase and pay for all of the Units
offered hereby on a "firm commitment" basis if any are purchased.
The Underwriter has advised the Company that it proposes to offer the
Units to the public at the initial public offering prices set forth on the
cover page of this Prospectus. The Underwriter may allow to certain dealers,
who are members of the National Association of Security Dealers, Inc.
("NASD"), concessions not exceeding $___ per Unit, of which not more than $___
per Unit may be reallowed to other dealers who are members of the NASD. After
the initial public offering, the offering price, the concession and the
reallowance may be changed.
The Company has granted an option to the Underwriter, exercisable
during the 45 day period from the date of this Prospectus, to purchase up to a
maximum of 180,000 additional Units at the public offering price set forth on
the Cover Page of this Prospectus, less the underwriting discount, for the
sole purpose of covering over-allotments of the Units.
The Company has agreed to pay to the Underwriter a non-accountable
expense allowance of 3% of the aggregate public offering price of all Units
sold (including any Units sold pursuant to the Underwriter's over-allotment
option).
51
<PAGE>
The Underwriting Agreement also provides for the Company to pay the
Underwriter a fee in the event that the Underwriter introduces the Company to
a party which enters into a business combination or other business transaction
with the Company.
All of the Company's officers, directors and major stockholders have
agreed not to sell (including any short sale or sale against the box) publicly
or otherwise transfer, subject to certain exceptions for transfers to related
parties, any of their securities without the written consent of the
Underwriter for a period of twelve months from the date of this Prospectus.
The Company has agreed that, during the 18 months following the date of this
Prospectus, it will not, without the consent of the Underwriter, register any
securities pursuant to the Securities Act without the consent of the
Underwriter, except that such restrictions do not apply to the registration of
stock issuable pursuant to the Company's present stock option plans on a Form
S-8 registration statement.
The Underwriting Agreement provides for reciprocal indemnification
between the Company and the Underwriter against certain liabilities in
connection with the registration statement, including liabilities under the
Securities Act.
In connection with this Offering, the Company has agreed to sell to
the Underwriter, for nominal consideration, Underwriter's Unit Price Options
to purchase from the Company up to 120,000 Units at an exercise price of $9.60
per Unit. The Warrants issuable upon exercise of the Underwriter's Unit
Purchase Options are identical to the Warrants included in the Units offered
hereby. The Underwriter's Unit Purchase Options are exercisable for a
four-year period commencing one year from the date of this Prospectus, except
that if the Warrants are redeemed prior to the exercise of the Underwriter's
Unit Purchase Option, upon such exercise, the Underwriter will be required to
exercise the underlying Warrants at the same time as the Underwriter's Unit
Purchase Option is exercised or waive the right to receive the Warrants.
During the one-year period commencing on the date of this Prospectus, the
Underwriter's Unit Purchase Options may not be sold, transferred, assigned or
hypothecated, except to the officers of the Underwriter or to selling group
members or officers or partners or members thereof, all of which shall be
bound by such restrictions. The Underwriter's Unit Purchase Options will
contain anti-dilution provisions providing for adjustment under certain
circumstances similar to those applicable to the Warrants. The holders of the
Underwriter's Unit Purchase Options have no voting, dividend or other rights
as stockholders of the Company with respect to securities underlying the
Underwriter's Unit Purchase Options until the Underwriter's Unit Purchase
Option or the underlying Warrants, as the case may be, are exercised. The
holders of the Underwriter's Unit Purchase Options have been given the
opportunity to profit from a rise in the market for the Company's securities
at a nominal cost, with a resulting dilution in the interests of stockholders.
The holders of the Underwriter's Unit Purchase Options can be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain equity capital, if then needed, by a new equity offering on terms more
favorable than those provided by the Underwriter's Unit Purchase Options. Such
facts may adversely affect the terms on which the Company could obtain
additional financing. Any profit received by the Underwriter on the sale of
the Underwriter's Unit Purchase Options or the securities issuable upon
exercise of the Underwriter's Unit Purchase Options may be deemed additional
underwriting compensation.
52
<PAGE>
The Company has agreed during the term of the Underwriter's Unit
Purchase Options and for two years thereafter to give advance notice to the
holders of the Underwriter's Unit Purchase Option or underlying securities of
its intention to file a registration statement, and in such case, the holders
of the Underwriter's Unit Purchase Options and underlying securities shall
have the right to require the Company to include the underlying securities in
such registration statement at the Company's expense. At the demand of the
holders of a majority of the Underwriter's Unit Purchase Options and
underlying Common Stock, including Common Stock issued or issuable upon
exercise of the Warrants issuable upon exercise of the Underwriter's Unit
Purchase Options, during the term of the Underwriter's Unit Purchase Options,
the Company will also be required to file one such registration statement at
the Company's expense. In addition, the Company has agreed to cooperate with
the holders of the Underwriter's Unit Purchase Options in filing a second
registration at the expense of the holders of the Underwriter's Unit Purchase
Options or underlying securities.
The Company and its officers, directors and 5% stockholders have
given the Underwriter an 18-month right of first refusal with respect to
public and private sales of the Company's securities by the Company and such
stockholders, including sales pursuant to Rule 144 of the Commission pursuant
to the Securities Act.
The Underwriting Agreement provides that, during the five-year period
following the date of this Prospectus, the Underwriter will have the right to
designate one member to the Company's board of directors. The Underwriting
Agreement also requires the Company to maintain key man life insurance on the
lives of Dr. Creve Maples ($1,000,000), Curtiz J. Gangi ($500,000) and Craig
Peterson ($500,000) during their respective terms of employment with the
Company.
Prior to this Offering, there has been no public market for the
Common Stock or Warrants of the Company. The public offering price and
composition of the Units and the exercise price and other terms of the
Warrants have been determined by negotiation between the Company and the
Underwriter and are not related to the Company's assets, book value, financial
condition or any other recognized criteria of value. In determining such price
and terms, the Company and the Underwriter considered a number of factors,
including estimates of the Company's business potential, the amount of
dilution to public investors, the Company's prospects, and the general
condition of the securities markets.
The Underwriter has informed the Company that sales to any account
over which the Underwriter exercises discretionary authority will not exceed
1% of this Offering.
LEGAL MATTERS
The legality of the issue of the shares of Common Stock and Warrants
offered hereby will be passed upon for the Company by Proskauer Rose LLP, New
York, New York. Certain legal matters will be passed upon for the Underwriter
by Esanu Katsky Korins & Siger, LLP, New York, New York.
53
<PAGE>
EXPERTS
The balance sheet as of September 30, 1997 and the statements of
operations, stockholders' equity and cash flows for the years ended September
30, 1997 and for the period from inception (October 1995) to September 30,
1996 of the Company included in this Prospectus, have been included herein in
reliance on the report, which includes an explanatory paragraph with respect
to the entity's ability to continue as a going concern as described in Note 3
to Notes to Financial Statements, of Feldman Sherb Ehrlich & Co., P.C.
(formerly Feldman Radin & Co., P.C.), independent certified public
accountants, given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company will be subject to certain informational requirements of
the Exchange Act, and, in accordance therewith, will file reports and other
information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at the
regional offices of the Commission at Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, New
York, New York 10048. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
address of such site is http//www.sec.gov.
A registration statement on Form SB-2 relating to the securities
offered hereby has been filed by the Company with the Commission. The
Prospectus does not contain all of the information set forth in such
registration statement. For further information with respect to the Company
and to the Securities offered hereby, reference is made to such registration
statement, including the exhibits thereto. Statements contained in this
Prospectus as to the content of any contract or other document referred to in
this Prospectus are not necessarily complete, and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the registration statement, each such statement being qualified in all
respects by such reference.
54
<PAGE>
MUSE TECHNOLOGIES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report.......................................... F-2
Balance Sheets........................................................ F-3
Statements of Operations.............................................. F-4
Statement of Stockholders' Equity..................................... F-5
Statements of Cash Flows.............................................. F-6
Notes to Financial Statements......................................... F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors of
MUSE Technologies, Inc.
We have audited the accompanying balance sheet of MUSE Technologies,
Inc. as of September 30, 1997, and the related statements of operations,
stockholders' equity and cash flows, for the year ended September 30, 1997,
and for the period from October 24, 1995 (inception) through September 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of MUSE Technologies,
Inc. as of September 30, 1997, and the results of its operations and cash
flows, for the year ended September 30, 1997, and for the period from
October 25, 1995 (inception) through September 30, 1996, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company incurred significant net losses in the
amounts of $2,049,102 and $1,203,745 in 1997 and 1996, respectively.
Additionally, the Company has a working capital deficiency of approximately
$880,000 at September 30, 1997. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans with
respect to these matters are also discussed in Note 3 to the financial
statements. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company not be able to continue as a going concern.
/s/ Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
(Formerly Feldman Radin & Co., P.C.)
New York, NY
November 7, 1997
(except notes 1, 3, 7, 9 and 14,
as to which the date is July 15, 1998)
F-2
<PAGE>
MUSE TECHNOLOGIES, INC.
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
--------------- --------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash........................................................... $ 924,348 $ 287,436
Accounts receivable............................................ 162,467 215,449
Prepaid insurance.............................................. 13,248 23,254
--------------- -------------------
TOTAL CURRENT ASSETS............................... 1,100,063 526,139
PROPERTY AND EQUIPMENT-- NET......................................... 444,619 762,173
NOTE RECEIVABLE - AFFILIATE.......................................... 55,000 55,000
DEFERRED OFFERING COSTS.............................................. 91,270 --
OTHER ASSETS......................................................... 19,052 22,652
--------------- -------------------
TOTAL ASSETS....................................... $ 1,710,004 $ 1,365,964
=============== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................... $ 36,381 $ 211,992
Accrued liabilities............................................ 94,907 203,687
Capital lease - current portion................................ 10,785 7,904
Notes payable (net of discount of $129,792 and $305,157)....... 794,129 932,343
Line of credit................................................. -- 50,000
--------------- -------------------
TOTAL CURRENT LIABILITIES.......................... 936,202 1,405,926
CAPITAL LEASE, less current portion.................................. -- 17,740
--------------- -------------------
TOTAL LIABILITIES.................................. 936,202 1,423,666
--------------- -------------------
STOCKHOLDERS' EQUITY:
Common stock, $.015 par value, 50,000,000 shares
authorized, issued and outstanding 7,763,893 and
7,278,279, respectively........................................ 116,458 109,174
Additional paid-in capital..................................... 6,459,091 3,518,471
Stock subscription receivable.................................. (87,500) (87,500)
Accumulated deficit............................................ (5,714,247) (3,597,847)
--------------- -------------------
TOTAL STOCKHOLDERS' EQUITY......................... 773,802 (57,702)
--------------- -------------------
$ 1,710,004 $ 1,365,964
=============== ===================
</TABLE>
See notes to the financial statements.
F-3
<PAGE>
MUSE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended Period From
June 30, October 24, 1995
-------------------------------- (inception)
1998 1997 Year Ended through
---- ---- September 30, 1997 September 30,1996
(unaudited) ------------------ -----------------
<S> <C> <C> <C> <C>
REVENUE.............................. $ 1,761,251 $533,351 $ 755,705 $ 355,392
------------ ------------ ------------------ -----------------
EXPENSES:
Selling, general and
administrative expenses........... 1,321,018 849,604 1,467,240 675,898
Research and development.......... 710,068 606,488 741,910 599,026
Non-cash imputed
compensation expense.............. 948,355 -- -- --
Depreciation...................... 343,334 309,885 427,735 251,954
Interest expense.................. 554,876 32,172 167,922 32,259
------------ ------------ ------------------ -----------------
TOTAL EXPENSES.................... 3,877,651 1,798,149 2,804,807 1,559,137
------------ ------------ ------------------ -----------------
NET LOSS............................. $ (2,116,400) $ (1,264,798) $ (2,049,102) $ (1,203,745)
============ ============ ================== =================
NET LOSS PER SHARE -
BASIC............................. $ (0.29) $ (0.18) $ (0.28) $ (0.18)
============ ============ ================== =================
WEIGHTED AVERAGE
NUMBER OF SHARES.................. 7,418,768 7,191,396 7,193,169 6,871,642
============ ============ ================== =================
</TABLE>
See notes to the financial statements.
F-4
<PAGE>
MUSE TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Stock Total Stock-
Additional Subscription Accumulated holders'
Shares Amount Paid-In Capital Receivable Deficit Equity
------ ------ --------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -
October 24, 1995 (inception).... -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock...... 6,694,079 100,411 (80,061) -- -- 20,350
Dividend...................... (400,000) (400,000)
Sale of common stock.......... 250,921 3,764 1,651,379 -- -- 1,655,143
Conversion of notes into
common stock.................. 131,579 1,974 865,957 -- -- 867,931
Net loss...................... (1,203,745) (1,203,745)
--------- --------- ------------ -------- ----------- ------------
BALANCE -
September 30, 1996.............. 7,076,579 106,149 2,437,275 -- (1,603,745) 939,679
Sale of common stock
pursuant to private placement. 99,014 1,485 584,000 -- -- 585,485
Sale of common stock in
connection with notes......... 81,415 1,221 335,855 -- -- 337,076
Issuance of common stock
pursuant to consulting
agreement..................... 9,758 146 74,014 -- -- 74,160
Sale of Stock to officer ..... 11,513 173 87,327 (87,500) -- --
Dividend adjustment .......... -- -- -- -- 55,000 55,000
Net loss...................... -- -- -- -- (2,049,102) (2,049,102)
--------- --------- ------------ -------- ----------- ------------
BALANCE-
September 30, 1997.............. 7,278,279 109,174 3,518,471 (87,500) (3,597,847) (57,702)
Issuance of common stock
pursuant to consulting
agreements.................... 4,058 61 30,780 -- -- 30,841
Sale of common stock
pursuant to private
placements.................... 412,566 6,188 1,652,285 -- -- 1,658,473
Conversion of notes into
common stock.................. 68,880 1,033 308,927 -- -- 309,960
Exercise of stock options..... 110 2 273 -- -- 275
Non-cash imputed compensation
expense......................... -- -- 948,355 -- -- 948,355
Net loss........................ (2,116,400) (2,116,400)
--------- --------- ------------ -------- ----------- ------------
BALANCE -
June 30, 1998 (unaudited)....... 7,763,893 $ 116,458 $ 6,459,091 $(87,500) $(5,714,247) $ 773,802
========= ========= ============ ======== =========== ============
</TABLE>
See notes to the financial statements.
F-5
<PAGE>
MUSE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Nine Months Ended June 30, inception (October
-------------------------------- Year Ended 24, 1995) through
1998 1997 September 30, September 30, 1996
----------- ----------- ------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss..................................... $ (2,116,400) $ (1,264,798) $ (2,049,102) $ (1,203,745)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation.............................. 343,334 309,885 427,735 257,071
Amortization of discount.................. 491,575 -- 127,968 --
Non-cash imputed compensation expense..... 948,355 -- -- --
Retirement of fixed assets................ -- -- 17,028 --
Issuance of shares under consulting
agreements................................ 30,841 -- -- --
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 52,982 40,459 (45,015) (170,434)
Decrease (Increase) in prepaid assets..... 10,007 -- (23,254) --
Decrease in other assets.................. 3,600 24,308 47,224 --
(Decrease) Increase in accounts payable... (175,611) 195,658 190,326 21,666
Increase in accrued interest.............. 48,921 -- -- --
(Decrease) in accrued liabilities......... (116,684) (146,077) (14,784) 218,471
------------- ------------ -------------- ----------------
CASH USED IN OPERATING
ACTIVITIES................................ (479,080) (840,565) (1,321,874) (876,971)
------------- ------------ -------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment........ (25,780) (222,528) (273,555) (979,374)
------------- ------------ -------------- ----------------
CASH USED IN INVESTING
ACTIVITIES................................ (25,780) (222,528) (273,555) (979,374)
------------- ------------ -------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid upon acquiring assets....... -- -- -- (400,000)
Net proceeds from sale of stock........... 1,658,748 676,903 629,062 1,643,424
Net proceeds from issuance of convertible
notes..................................... -- 1,113,750 1,113,750 900,000
Proceeds from issuance of notes........... 568,749 -- -- --
Deferred offering costs................... (91,270) -- -- --
Due from affiliate........................ -- -- 23,627 (23,627)
Increase in notes payable - affiliates.... -- -- -- 815,000
(Repayments) Increase in capital lease
payable................................... (6,955) -- 25,644 --
Repayment of notes payable - affiliates... -- -- -- (1,037,670)
Repayment of notes payable - others....... (937,500) -- -- --
(Repayments) Borrowings-line of credit.... (50,000) 50,000 50,000 --
------------- ------------ -------------- ----------------
CASH PROVIDED BY FINANCING
ACTIVITIES................................ 1,141,772 1,840,653 1,842,083 1,897,127
------------- ------------ -------------- ----------------
NET INCREASE IN CASH 636,912 777,560 246,654 40,782
CASH - Beginning of year.......................... 287,436 40,782 40,782 --
------------- ------------ -------------- ----------------
CASH - End of year................................ $ 924,348 $ 818,342 $ 287,436 $ 40,782
============= ============ ============== ================
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Period from
Nine Months Ended June 30, inception (October
-------------------------------- Year Ended 24, 1995) through
1998 1997 September 30, September 30, 1996
----------- ----------- ------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest..................................... $ 49,894 $ 32,172 $ 167,922 $ 32,259
Non-cash financing and investing activities:
(1) In connection with the acquisition
from an affiliate:
Assets acquired......................... -- -- -- 751,664
Liabilities assumed..................... -- -- -- 528,994
------------- ------------ ------------- ----------------
Notes issued...................... -- -- -- 222,670
(2) Convertible notes converted to
common stock............................ 309,960 -- -- 900,000
(3) Common stock issued in connection
with note issuance...................... -- -- $ 433,125 --
</TABLE>
See notes to the financial statements.
F-7
<PAGE>
MUSE TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996
1. THE COMPANY
Muse Technologies, Inc. (the "Company") was incorporated in Delaware
on October 24, 1995 to develop and market software products, designed to
enhance the user's ability to understand and analyze data and information and
to provide solutions to complex data integration and data management problems.
The multisensory capabilities of the software ("MuSE"), enables the user to
present information in real time using visual, auditory, tactical and other
analytical tools. Muse is based on software licensed to the Company by Sandia
Corporation ("Sandia") pursuant to a license agreement dated October 9, 1995
(the "License Agreement"). The Company has also developed a proprietary
software product, "Continuum", designed for multiuser, real-time collaboration
within the MuSE environment.
In December, 1995 the Company acquired substantially all assets and
liabilities from Viga Technologies Corporation ("Viga"), an affiliate with
common ownership. As part of the acquisition Viga agreed to transfer the
License Agreement to the Company. Pending completion of the transfer Viga
sublicensed its rights under the License Agreement to the Company. On July 15,
1996, the License Agreement was formally assigned to the Company.
The Company commenced operations in December 1995. To date, the
majority of the Company's revenue has been generated from products utilizing
the MuSE technology and applied research and development services for
customers in the Federal, corporate and nonprofit markets of the United
States. Sales to the United States government represented $528,748, or 70%,
and $256,892 or 72%, of revenue in 1997 and 1996, respectively. Accounts
receivable from the United States government were $98,125 at September 30,
1997. The Company does not require collateral on its accounts receivable.
The Company effected two stock splits since inception, a 1000-for-1
forward stock split on November 9, 1995 and a 1-for-3.04 reverse stock split
on March 5, 1998. In addition, in conjunction with the 1-for-3.04 reverse
stock split, the par value of the Company's stock was changed from $0.01 per
share to $0.015 per share. All references to the number of shares of common
stock and per share amounts in the accompanying financial statements and
related footnotes have been restated as appropriate to reflect the splits for
all periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Use of Estimates- The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amount of assets
and liabilities, and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
b. Revenue Recognition- The Company licenses software to end users
under license agreements. The Company recognizes revenues in accordance with
Statement of Position 91-1 entitled "Software Revenue Recognition" ("SOP-91"),
issued by the American Institute of Certified Public Accountants ("AICPA").
SOP-91 requires that software license revenue be recognized upon the receipt
of a valid order and product shipment, provided no significant obligation to
the customer exists. Maintenance (post-contract support) revenues are
recognized on a straight-line basis over the term of the maintenance agreement
(generally, one year). Maintenance revenues not currently recognized are
recorded as deferred revenues. Revenues for other services and training are
recognized upon performance of the service.
F-8
<PAGE>
The AICPA has issued SOP 97-2 with regards to recognizing revenues
on software transactions. SOP 97-2, which supersedes SOP 91-1, is effective on a
prospective basis for fiscal years beginning after December 15, 1997. The
adoption of the new SOP is not expected to have a material effect on the
Company's financial statements.
c. Research and Development- Research and development expenditures
are charged to operations as incurred. Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased or Otherwise Marketed," requires capitalization of certain software
development costs subsequent to the establishment of technological
feasibility. Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred
by the Company between completion of the working model and the point at which
the product is ready for general release have been immaterial.
d. Property and Equipment- Property and equipment are stated at cost.
Depreciation is calculated on the straight-line method over three years, which
is the estimated useful life of the assets.
e. Net Income (Loss) Per Share - Basic earnings (loss) per share is
computed using the weighted average number of shares of outstanding common
stock. Diluted per share amounts also include the effect of dilutive common
stock equivalents from the assumed exercise of stock options.
f. Income Taxes- Income taxes are accounted for under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax
returns.
g. Cash Equivalents- Cash equivalents are carried at cost, which
approximates market value. For purposes of the statement of cash flows, the
Company considers all highly liquid short-term investments that are readily
convertible to cash and have original maturities of three months or less from
their date of purchase to be cash equivalents. Cash equivalents consist of
overnight interest funds.
h. Fair Value of Financial Instruments- The Company's financial
instruments under Statement of Financial Accounting Standards No. 107 ("SFAS
107") "Disclosures About Fair Value of Financial Instruments," includes cash,
accounts receivable, notes receivable, accounts payable, notes payable,
borrowings under line of credit facility, and long-term debt. The Company
believes that the carrying amounts of these accounts are a reasonable estimate
of their fair value because of the short-term nature of such instruments.
3. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
the continuation of the Company as a going concern. However, the Company
reported net losses of $2,049,102 and $1,203,745 in 1997 and 1996,
respectively. Additionally, the Company has a working capital deficiency of
approximately $880,000 at September 30, 1997. Consequently, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon the Company's ability to obtain financing and
to succeed in its future operations. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classifications of liabilities that might be
necessary should the Company be unable to continue in existence.
During 1996, in connection with the private placement offering and
the issuance of convertible notes, the Company sold 386,312 shares of common
stock for net proceeds of $2,523,074. During the fiscal year ended September
30, 1997, an additional 99,014 shares were sold for net proceeds of $585,485.
In December 1997, the Company sold, through a private placement offering, 35
units, each unit consisting of a one year, 8% promissory note in the principal
amount of $25,000 and 1,645 shares of common stock. The Company believes that
future operations,
F-9
<PAGE>
together with the additional capital from future sales of stock through
private or public financings, will provide sufficient liquidity for the
Company to continue as a going concern.
4. PROPERTY AND EQUIPMENT
Property and equipment at September 30, 1997 is as follows:
Computer equipment $ 1,328,952
Furniture and fixtures 111,227
----------------
1,440,179
Less: accumulated depreciation (678,006)
----------------
$ 762,173
================
5. ISSUANCES OF STOCK AND DEBT
(i) In October 1995, the Company issued, for nominal consideration,
6,694,080 shares of Common Stock to the stockholders of Viga. See
(Note 9.)
(ii) In December 1995, the Company received net proceeds of $900,000
from the sale of four units, each of which consisted of $249,900 face
amount of 10% convertible promissory notes and warrants to purchase
8,306 shares of common stock at $7.60 per share. In April 1996, the
notes were converted into 131,579 shares of common stock at a
conversion price of $7.60 per share.
(iii) During 1996, the Company sold 250,921 shares of common stock
for net proceeds of $1,655,143. During the year ended September 30,
1997, an additional 99,014 shares were sold for net proceeds of
$585,485.
(iv) In June 1997, the Company issued $1,237,500 principal amount of,
8% promissory notes and shares of the Company's common stock for
which it received net proceeds of $1,113,750. The principal balance
and accrued interest are due and payable upon the earlier of the one
year anniversary of the date of the note or seven days after the
consummation of an initial public offering. For valuation purposes,
$433,125 was allocated to the common stock and the remainder to the
notes. Accordingly, the notes were issued at a discount from their
face value. The discount will be amortized over the one year term of
the notes. At September 30, 1997, the unamortized discount and
related amortization expense was $305,157 and $127,968, respectively.
(v) In September 1997, the Company sold to an officer 11,514 shares
of Common Stock at a purchase price of $7.60 per share or an
aggregate of $87,500. Payment of the purchase price was made by
issuance of a non-recourse promissory note secured by a pledge of the
shares purchased.
6. STOCK OPTIONS AND WARRANTS
The Company currently has two stock option plans with essentially
identical terms and conditions. Under the 1995 Stock Option Plan, the Company
may grant non-qualified stock options to purchase up to 565,449 shares of
common stock. Under the 1996 Stock Option Plan, the Company may grant
non-qualified or incentive stock options to purchase up to 1,644,737 shares of
common stock. Options may be granted to employees, officers, directors,
consultants and independent contractors. Under the Plans, options may be for
periods up to ten years and become
F-10
<PAGE>
exercisable in varying amounts based on a vesting schedule. In general, the
options become exercisable in three installments beginning on the first
anniversary of the grant. All options allow for the purchase of common stock
at prices equal to market value at the date of the grant.
The Company accounts for its stock option plans under APB Opinion No.
25, "Accounting for Stock Issued to Employees," ("APB 25"), under which no
compensation cost is recognized. In fiscal 1997, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation," ("SFAS 123") for disclosure
purposes: accordingly, no compensation has been recognized in the results of
operations for its stock option plans as required by APB 25.
For disclosure purposes the fair value of each stock option grant is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for stock options granted
during the years ended September 30, 1997 and 1996; annual dividends of $0.00,
expected volatility of 50%, risk-free interest rate of 5.7%, and expected
option lives of six years. The weighted average fair value of the stock
options granted for the years ended September 30, 1997 and 1996 was $1.89 and
$1.38, respectively.
See Notes 5 and 9 with respect to the issuance of warrants by the
Company.
The following table summarizes the changes in options and warrants
outstanding, and the related exercise price for shares of the Company's common
stock:
<TABLE>
<CAPTION>
Stock Options Warrants
---------------------------------------------------- --------------------------------------------------
Exercise Exercise
Shares Price (1) Exercisable Shares Price Exercisable
------------- ------------- --------------- ------------ ------------ --- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at -- -- -- -- -- --
October 24, 1995
Granted 141,447 $ 2.50 -- -- -- --
Canceled (49,342) 2.50 -- 121,710 $7.60 --
------------- ------------- -------------- ------------ ------------- ---------------
Outstanding at
September 30, 1996 92,105 2.50 16,630 121,710 7.60 --
============== ===============
Granted 906,907 2.50 -- 419,112 7.60 --
Granted 197,368 7.60 -- -- -- --
Canceled (13,158) 2.50 (102,039) 7.60 36,033
------------- --------------- ------------ ------------ ---------------
Outstanding at 1,183,222 2.50-7.60 307,610 438,783 7.60 438,783
September 30, 1997
============= ============= =============== ============ ============ ===============
- ----------------------------
</TABLE>
(1) As a result of the March 5, 1998 1-for-3.04 reverse stock split, the
exercise price of the options under the Company's 1995 and 1996 stock option
plans was $7.60. In April 1997, the exercise price of the options was reduced
to $2.50 per share. The above table reflects such repricing.
Had compensation cost for the Company's two option plans been
determined in accordance with SFAS 123, the Company's net loss and loss per
share would have been increased to the pro forma amounts indicated below for
the years ended September 30:
F-11
<PAGE>
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------
<S> <C> <C>
Net Loss........................... As reported $ (2,049,102) $ (1,203,745)
Pro forma $ (2,241,718) $ (1,214,318)
Net Loss per Common Share As reported $ (0.28) $ (0.18)
Pro forma $ (0.31) $ (0.18)
</TABLE>
7. EMPLOYMENT AGREEMENTS
---------------------
Effective June 1, 1998 the Company has entered into three year
employment agreements with various officers of the Company as follows:
The Chief Technical Officer of the Company will receive an annual
base salary of $150,000 and a bonus of up to $65,000 upon the Company
achieving certain performance objectives. This officer also received options
to purchase Common Stock of the Company at an exercise price of $7.50 per
share, which vests as follows: 30,000 shares on June 1, 1999, 37,500 shares on
June 1, 2000, and 50,000 shares on June 1, 2001.
The President of the Company will receive an annual base salary of
$215,000 and a bonus of up to $134,000 upon the Company achieving certain
performance objectives. The President also received options to purchase Common
Stock of the Company at an exercise price of $7.50 per share, which vests as
follows: 100,000 shares on June 1, 1999, 125,000 shares on June 1, 2000 and
150,000 shares on June 1, 2001. The President will also receive a five year
loan in the amount of $150,000 at 5% annual interest in connection with his
relocation to New Mexico upon the successful completion of an initial public
offering ("IPO") of the Company's securities.
The Vice-President of Sales and Marketing will receive an annual base
salary of $150,000. This officer will receive commissions under the Company's
Sales Compensation Plan and will be entitled to receive a bonus as determined
by the Board of Directors. The officer also received options to purchase
Common Stock of the Company at an exercise price of $7.50 per share, which
vests as follows: 30,000 shares on June 1, 1999, 37,500 shares on June 1, 2000
and 50,000 shares on June 1, 2001. Such officer will also receive a five year
loan in the amount of $75,000 at 5% annual interest in connection with his
relocation to New Mexico upon the successful completion of an IPO.
The Chief Financial Officer will receive an annual base salary of
$150,000 and a bonus of up to $65,000 upon the Company achieving certain
performance objectives. This officer also received options to purchase Common
Stock of the Company at an exercise price of $7.50 per share, which vests as
follows: 30,000 shares on June 1, 1999, 37,500 shares on June 1, 2000 and
50,000 shares on June 1, 2001. The Chief Financial Officer will also receive a
five year loan in the amount of $75,000 at 5% annual interest in connection
with his relocation to New Mexico upon the successful completion of an IPO.
Under the above agreements, if such the officer is terminated by the
Company other than for cause (as defined in each employment agreement), or if
the officer dies or becomes permanently disabled, all stock options held by
such officer shall immediately vest upon such termination and such officer
shall receive severance payments in an amount equal to one year's base salary
for the President, Chief Financial Officer and the Vice President of Sales and
Marketing (if terminated after November 30, 1998), and two year's base salary
for the Chief Technical Officer. Each of the employment agreements also
contain provisions relating to severance payments equal to the salary and
bonus for the remainder of the employment term plus an additional one year's
base salary in the event of a change in control (as defined in the employment
agreement).
F-12
<PAGE>
8. RETIREMENT PLAN
---------------
In October 1996, the Company established a defined contribution plan
(401(k) plan) covering substantially all employees. Under the terms of the
plan, eligible employees may contribute up to fifteen percent of their
compensation, subject to statutory limitations. The Company expensed $23,249,
representing three percent of eligible employees compensation, for their
contribution to the plan for the year ended September 30, 1997.
9. RELATED PARTY TRANSACTIONS
--------------------------
a. Viga Technologies Corporation- In October 1995, the Company
issued 6,694,080 shares of Common Stock to the stockholders of Viga,
including certain officers, directors and principal stockholders of the
Company in proportion to the beneficial stock ownership of Viga. In
December 1995, the Company acquired the assets of Viga, including its
rights under the License Agreement. As part of the acquisition, Viga
sublicensed the MuSE technology to the Company until the License
Agreement could be transferred to the Company, which transfer was
completed in July 1996. The purchase price for the Viga assets was
$1,152,000 (not including assumption of certain liabilities). The
Company issued notes in the amount of $222,670 representing the
difference between the assets acquired and liabilities assumed, and
$400,000 representing the sublicense fee. The two notes were paid,
without interest, in 1996. In 1997, Viga reduced the purchase price by
$55,000, for which Viga issued its 6.5% note due November 2001. (See
Note 1).
Since the Company and Viga were controlled by substantially
the same persons, the excess of purchase price over book value of net
assets acquired was recorded as a dividend to stockholders. A summary
of the transaction is as follows:
Purchase Price $ 622,670
Assets Acquired (751,664)
Liabilities Assumed 528,994
----------------
Dividend $ 400,000
================
The above mentioned License Agreement, which was amended in
July 1998, grants the Company exclusive rights to develop and
commercialize MuSE until October 2005 and thereafter provides a
non-exclusive right through 2015. At the end of such ten year period
of exclusivity, the Company may request the licensor to extend
exclusivity through 2015, which determination shall be made in the
licensor's sole discretion. The licensor has the right to terminate
the license or make the license non-exclusive in the event the
Company fails to pay the required royalties under the license
agreement, with an annual minimum royalty of $20,000 through the year
ended December 31, 2006. The Company is also obligated to pay an
annual license fee of $10,000 through the year ending December 31,
1999 and a one-time payment of $20,000 prior to July 1999.
b. Investment Banking Agreement- The Company has entered into an
investing banking agreement with Investors Associates, Inc. ("IAI").
Certain owners of IAI are stockholders of the Company. In general,
the Company has engaged IAI to provide investment banking services
relating to the financings described in Note 5. On June 30, 1997, the
investment banking agreement with IAI was mutually terminated.
For services as placement agent for such transactions, in
1997, the Company paid IAI fees of $123,750 and issued to IAI
warrants to purchase 317,073 of common stock at $7.60 per share, and
in 1996, the Company paid IAI fees of $203,490 and issued to IAI
warrants to purchase 121,710 shares of common shares at $7.60 per
share. The warrants expire at various times from December 31, 1998 to
April 2001.
c. Transactions With Stockholders- The Company had entered into a
consulting agreement expiring September 30, 1997 with Quatro
Corporation ("Quatro"), a minority shareholder, in which Quatro will
provide accounting services, financial and business support,
executive and marketing consulting, and manufacturing
F-13
<PAGE>
consulting services to the Company. The Company paid $19,324 and
$33,564 to Quatro for these services in 1997 and 1996, respectively.
The Company entered into an executive marketing and
consulting agreement with Technology Business Associates ("TBA"), a
minority shareholder of the Company, which expired September 30,
1996. During 1996, the Company paid $51,326 to TBA under the
agreement. An officer and director of the Company is also the
founder, a director and executive officer of both Quatro and TBA.
d. Consulting Agreement- In March 1997, the Company entered into
a consulting agreement with an independent contractor, wherein the
contractor will act as an advisor to the Company with respect to
business development and strategic alliance matters. The contractor was
granted options to purchase 23,688 shares of Company common stock at a
price of $7.60 per share, vesting at 1,974 shares per month.
10. INCOME TAXES
------------
The Company accounts for income taxes using an asset and liability
approach which generally requires the recognition of deferred income tax
assets and liabilities based on the future income tax consequences of events
that have previously been recognized in the Company's financial statements or
tax returns. Since the Company cannot currently conclude that it is more
likely than not that some or all of the deferred income tax asset will be
realized, the related net deferred tax assets have been fully offset by a
valuation allowance. The Company has reported net operating losses of
approximately $1,924,000 and $1,594,000 for income tax purposes in 1997 and
1996, respectively. Utilization of this loss as a carryforward to offset
future taxable income is dependent on the Company having taxable income. The
net operating loss carryforwards expire beginning 2011, if not utilized.
Significant components of the deferred tax assets are as follows as
of September 30, 1997:
Net operating loss carryforward $ 1,263,000
-----------------
Total gross deferred tax asset 1,263,000
Less valuation allowance (1,263,000)
-----------------
Net deferred tax assets $ --
=================
11. LEASES
The Company leases its laboratory and office facilities under
non-cancellable lease arrangements. Rent expense for 1997 and 1996 was
$109,583 and $85,182, respectively. Future minimum lease payments under
noncancellable operating leases are:
1998 $ 104,712
1999 109,105
2000 18,306
------------------
$ 232,123
==================
12. GOVERNMENT CONTRACTS
--------------------
The Company derives significant revenue from contracts with the
Federal government. Recognition of revenue is generally conditioned upon
compliance with terms and conditions of the contracts and applicable Federal
regulations. Substantially all contracts are subject to audit by agencies of
the Federal government or their designees. Disallowances by Federal officials
as a result of these audits may become liabilities of the Company. The Company
has not recorded any liability for disallowances which may be determined in
the future.
F-14
<PAGE>
13. LINE OF CREDIT FACILITY
-----------------------
In November 1996, the Company obtained a revolving line of credit in
the amount of $50,000. Outstanding balances on the line bear interest at prime
plus one and one-half percent and the line expires on November 1, 1997. In
addition, the Company received a credit card with an available borrowing limit
of $25,000. As part of the borrowing arrangements, the Company is required to
maintain a compensating cash balance in the amount of $75,000. Borrowings
against the line of credit were $50,000 as of September 30, 1997. The line of
credit agreement has been extended to February 1, 1998.
14. OTHER SUBSEQUENT EVENTS
-----------------------
a. Private Placement - In April and May 1998, the Company
received net proceeds of $1,411,500 from the sale in a private
placement of 35.5 units at $45,000 per unit. Each unit consists of
10,000 shares of the Company's common stock and a series A common stock
purchase warrant to purchase 10,000 shares of common stock.
b. Marketing Agreement - In July 1998, the Company entered into
an agreement with an entity which grants such entity the rights to
market, sell and distribute the Company's products.
Under the terms of the agreement, the Company will receive a
$5,000,000 fee granting the entity exclusive worldwide selling rights
of the Company's products in the oil and gas industry. As of June 30,
1998, the Company has received $1,000,000 of the $5,000,000, with the
balance due in two equal installments on September 30, 1998 and
November 30, 1998.
The agreement is for an initial term of three years with a
provision for three successive three year renewal periods. The
agreement provides for the Company to receive a minimum of
$12,000,000 from the entity for the sale of MuSE software over the
initial and renewal terms of the agreement.
In connection with this agreement, the Company's Vice
President of Sales and Marketing earned previously granted options to
purchase 197,369 shares at an exercise price of $7.60 per share.
c. Subscription Agreement - On July 15, 1998, the Company entered
into a subscription agreement with an entity for the sale of
1,000,000 shares of common stock and a series stock purchase warrant
for the purchase up to 1,000,000 shares of common stock. The stock
and the warrants were sold as a unit for $8,000,000. The Company paid
its Vice President--Sales and Marketing a commission of $520,000 in
connection with this sale.
d. Proposed Public Offering - In February 1998, the Company
entered into a letter of intent with respect to an initial public
offering of its securities.
F-15
<PAGE>
- -------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or representations other than those contained in this Prospectus,
and if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any security offered by this Shares Prospectus, or an offer to sell or a
solicitation of an offer to buy any security, by any person in any jurisdiction
in which such offer or solicitation would be unlawful. Neither the delivery of
this Prospectus nor any sale made hereunder shall under any circumstances,
imply that the information in this Prospectus is correct as of any time
subsequent to the date of this Prospectus.
TABLE OF CONTENTS
Page
Prospectus Summary................................................... 3
Summary Financial Information........................................ 7
Risk Factors......................................................... 9
Dilution............................................................. 19
Use of Proceeds...................................................... 20
Capitalization....................................................... 21
Dividend Policy...................................................... 22
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 23
Business............................................................. 26
Management........................................................... 34
Principal Stockholders............................................... 42
Certain Relationships and Related Transactions....................... 43
Financings........................................................... 45
Sales by Selling Securityholders..................................... 47
Description of Securities............................................ 48
Shares Eligible for Future Sale...................................... 50
Underwriting......................................................... 51
Legal Matters........................................................ 53
Experts.............................................................. 54
Additional Information............................................... 54
Index to Financial Statements........................................ F-1
Until _____ , 1998 (25 days from the date of this
Prospectus), all dealers effecting transactions in the
registered securities, whether or not participating in
this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold
allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO]
1,200,000 Units
MUSE TECHNOLOGIES, INC.
Consisting of
1,200,000 Shares of Common Stock and
600,000 Class A Redeemable
Common Stock Purchase
Warrants
-----------------
PROSPECTUS
-----------------
HD BROUS & CO., INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
ALTERNATE PAGE
PRELIMINARY PROSPECTUS DATED ________ __, 1998 SUBJECT TO COMPLETION
PROSPECTUS
- ----------
MUSE TECHNOLOGIES, INC.
423,881 Shares of Common Stock and
423,881 Class A Redeemable Common Stock Purchase Warrants
This Prospectus relates to the sale or other disposition of 423,881
outstanding shares of common stock, par value $.015 per share ("Common
Stock"), of Muse Technologies, Inc. (the "Company"), and 423,881 outstanding
Class A Redeemable Common Stock Purchase Warrants (the "Warrants") owned by
certain selling securityholders (the "Selling Securityholders"), and the
issuance of 423,881 shares of Common Stock upon exercise of such Warrants. The
outstanding shares of Common Stock and Warrants were issued by the Company in
connection with a private placement and upon conversion of certain outstanding
debt of the Company.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at an exercise price of $9.60 per share, subject to adjustment, until
, 2003, subject to prior redemption by the Company. The Warrants are
redeemable by the Company at a redemption price of $.01 per Warrant, upon at
least 30 days' prior written notice, during the period commencing one year from
the date of this Prospectus or earlier with the consent of the HD Brous & Co.,
Inc., the underwriter of the Company's initial public offering (the
"Underwriter"), provided that the average closing price of Common Stock is at
least $12.00 per share, subject to adjustment, for the twenty day period ending
not earlier than five days prior to the date on which the Warrants are called
for redemption. See "Description of Securities--Class A Redeemable Common Stock
Purchase Warrants."
The Selling Securityholders' securities may be sold from time to time
commencing one year from the date of this Prospectus or earlier with the
consent of the Underwriter. The Selling Securityholders may effect such
transactions by selling securities directly to purchasers, through
broker-dealers, including the Underwriter, acting as agents for the Selling
Securityholders or to broker-dealers, including the Underwriter, who may
purchase securities as principals and thereafter sell the securities from time
to time in the Nasdaq SmallCap Market, in negotiated transactions or
otherwise. Such broker-dealers, if any, may receive compensation in the form
of discounts, concessions or commissions from the Selling Securityholder
and/or the purchasers from whom such broker-dealer may act as agents or to
whom they may sell as principals or otherwise (which compensation as to a
particular broker-dealer may exceed customary commissions). Such securities
may also be transferred by gift.
The Selling Securityholders and brokers through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities
offered, and any profits realized or commissions received may be deemed
underwriting compensation. The Company has agreed to indemnify the Selling
Securityholders against certain liabilities, including liabilities under the
Securities Act.
The registration statement of which this Prospectus is a part also
relates to an underwritten public offering (the "Offering") of 1,200,000 Units
by the Company. The Units are comprised of a total of 1,200,000 shares of
Common Stock and 600,000 Warrants.
The Company will not receive any of the proceeds from the sale of
securities by the Selling Securityholders other than the exercise price of any
Warrants which are exercised. The cost of the registration of the securities
being sold by the Selling Securityholders, will be paid by the Company.
AN INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
DISCUSSION UNDER THE CAPTIONS "RISK FACTORS," WHICH BEGINS ON PAGE , AND
"DILUTION."
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______, 1998
A-1
<PAGE>
ALTERNATE
SALES BY SELLING SECURITYHOLDERS
This registration statement also relates to the sale by the Selling
Securityholders named below of an aggregate of 423,881 shares of Common Stock
and 423,811 Warrants as well as the 423,811 shares of Common Stock issuable
upon exercise of the Warrants. With respect to the shares of Common Stock
issuable upon exercise of the Warrants, the registration statement covers both
the issuance of the Common Stock upon such exercise and the subsequent sale by
the holders thereof.
The following table sets forth (i) the name of each Selling
Securityholder, (ii) the number of shares of Common Stock and Warrants owned
by each Selling Securityholder prior to the offering, (iii) the number of
shares of Common Stock and Warrants offered for each Selling Securityholder's
account and (iv) the percentage of the Common Stock owned by each Selling
Securityholder after completion of the offering. None of the Selling
Securityholders has had any position, office or other material relationship
with the Company or any of its affiliates since the Company's organization.
<TABLE>
<CAPTION>
Number of Shares and Number of Shares
Number of Shares Warrants Offered For and Warrants Percentage
and Warrants Owned Account of Selling Owned Owned After
Selling Securityholder Prior to Offering Securityholder After Offering Offering
---------------------- ----------------- -------------- -------------- --------
Shares(1) Warrants Shares Warrants
------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
James Scannell............ 10,000 10,000 10,000 10,000 0 0
Irene C. Snyder........... 5,000 5,000 5,000 5,000 0 0
Stephen J. Thomas......... 10,000 10,000 10,000 10,000 0 0
David P. Franco........... 206,447 190,000 190,000 190,000 16,447 *
D. Max Bruce and
Ruth A. Bruce as
Trustees of the Ruth
Ann Bruce Trust........... 10,000 10,000 10,000 10,000 0 0
Abbey E. Blatt............ 10,000 10,000 10,000 10,000 0 0
Allan Y. Cohen............ 11,645 10,000 10,000 10,000 1,645 *
Sterling Furniture Co..... 20,000 20,000 20,000 20,000 0 0
Lee Ginsberg.............. 20,000 20,000 20,000 20,000 0 0
Edward C. Smith........... 5,000 5,000 5,000 5,000 0 0
Tim Connolly.............. 10,000 10,000 10,000 10,000 0 0
Valerie Cramer............ 10,000 10,000 10,000 10,000 0 0
Bruce H. Elliott.......... 5,000 5,000 5,000 5,000 0 0
Stephen F. Bergen......... 10,000 10,000 10,000 10,000 0 0
Paul McCarthy............. 30,000 30,000 30,000 30,000 0 0
Ting H. Liu and
Elizabeth S. Liu.......... 44,524 34,656 34,656 34,656 9,868 *
Nino Selimaj.............. 34,225 34,225 34,225 34,225 0 0
</TABLE>
- -------------------
* Less than one percent.
(1) Does not include shares of Common Stock issuable upon the exercise of the
Warrants owned by such Selling Securityholder.
The Selling Securityholders have advised the Company that any sales of
the outstanding shares of Common Stock and Warrants and any shares of Common
Stock which are issuable upon exercise of the Warrants may be effected from
time to time in transactions (which may include block transactions by or for
the account of the Selling Securityholder) on the Nasdaq SmallCap Market or in
negotiated transactions, a combination of such methods of sale or otherwise.
Sales may be made at fixed prices which may be changed, at market prices or in
negotiated transactions, a combination of such methods of sale or otherwise.
In addition, Selling Securityholders may transfer any of the shares of Common
Stock or Warrants covered by this Prospectus by gift. The Selling
Securityholders have agreed that they will not sell any of the their
Securities pursuant to this Prospectus prior to one year from the date of this
Prospectus without the consent of the Underwriter. Any donee of the securities
would be subject to the same restriction.
A-2
<PAGE>
The Selling Securityholders may effect such transactions by selling such
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase Warrants or
shares of Common Stock as principals and thereafter sell the securities from
time to time on the Nasdaq SmallCap Market, in negotiated transactions or
otherwise. In any such transaction, the Underwriter may act as broker-dealer
for the Selling Securityholder and/or for the purchasing party or the
Underwriter may purchase shares of Common Stock or Warrants for its own
account although the Underwriter has no agreement or understanding, either
formal or informal, with any Selling Securityholder with respect to any such
transactions. Such broker-dealers, if any, including the Underwriter, may
receive compensation in the form of discounts, concessions or commissions from
the Selling Securityholder and/or the purchasers from whom such broker-dealer
may act as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary
commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholder's securities may not
simultaneously engage in market-making activities with respect to any
securities of the Company during the applicable restricted period (which may
be one or five days or such other period as Regulation M of the Commission
under the Exchange Act may provide) prior to the commencement of such
distribution. Accordingly, in the event the Underwriter is engaged in a
distribution of a Selling Securityholder's securities, it will not be able to
make a market in the Company's securities during the applicable restrictive
period. However, the Underwriter has not agreed to and is not obligated to act
as broker-dealer in the sale of any Selling Securityholder's securities and
the Selling Securityholders may be required, and in the event the Underwriter
is a market-maker, will likely be required, to sell such securities through
another broker-dealer. In addition, each Selling Securityholder desiring to
sell securities will be subject to the applicable provisions of the Exchange
Act and the rules and regulations thereunder, including, without limitation,
Regulation M, which provisions may limit the timing of the purchases and sales
of shares of the Company's securities by such Selling Securityholders.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discount and commissions under the Securities Act.
A-3
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or representations other than those contained in this Prospectus,
and if given or made, such information or representations must not be relied
upon as having been authorized by the Company or the Underwriter. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any security offered hereby by any person in any jurisdiction in which such
offer or solicitation would be unlawful. Neither the delivery of this Prospectus
nor any sale hereunder shall under any circumstances imply that the information
in this Prospectus is correct as of any time subsequent to the date of this
Prospectus.
------------------------------------
TABLE OF CONTENTS
Page
Prospectus Summary.............................................................3
Risk Factors...................................................................7
Use of Proceeds...............................................................15
Dilution......................................................................16
Capitalization................................................................17
Dividend Policy...............................................................17
Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................18
Business......................................................................20
Management....................................................................27
Principal Shareholders........................................................30
Certain Transactions..........................................................31
Sales by Selling Securityholders..............................................32
Description of Securities.....................................................33
Shares Eligible for Future Sale...............................................35
Underwriting..................................................................37
Legal Matters.................................................................39
Experts.......................................................................39
Additional Information........................................................39
Index to Financial Statements................................................F-1
------------------------------------
Until ____, 1998 (25 days from the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
ALTERNATE
[LOGO]
MUSE TECHNOLOGIES, INC.
423,881 Shares of Common Stock and
423,881 Class A Redeemable Common Stock
Purchase Warrants
------------------
PROSPECTUS
------------------
_____________ , 1998
- --------------------------------------------------------------------------------
A-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a
corporation, within certain limitations, to indemnify any person by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorney's fees) judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with an action, suit or proceeding, if such
person acted, in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, in criminal actions
or proceedings, in addition, had no reasonable cause to believe that his
conduct was unlawful.
Article Eight of the Registrant's Certificate of Incorporation, as
amended, provides that:
EIGHTH: The Corporation shall, to the fullest extent permitted by
the provisions of Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify
under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit
of the heirs, executors, and administrators of such a person.
In addition, Article VII Section 1 of the By-Laws of the Registrant
provides that:
The Corporation hereby agrees to hold harmless and indemnify any of
its officers, directors, employees or agents from and against, and to
reimburse such persons for, any and all judgments, fines, liabilities,
amounts paid in settlement and expenses, including attorneys' fees,
incurred directly or indirectly as a result of or in connection with
any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, whether or
not such action, suit or proceeding is by or in the right of the
Corporation to procure a judgment in its favor, including an action,
suit or proceeding by or in the right of any other corporation of any
type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise for which such person
served in any capacity at the request of the Corporation, to which
such person is, was or at any time becomes a party, or is threatened
to be made a party, or a result of or in connection with any appeal
therein, by reason of the fact that such person, is, was or at any
time becomes a director, officer, employee or agent of the Corporation
or is or was serving or at any time serves such other corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, whether arising out of any breach of such
person's fiduciary duty as a director, officer, employee or agent of
such other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise under any state or federal law or
otherwise; provided, however, that (i) indemnification shall be paid
pursuant to this Article VII if and only if such person acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and (ii) no indemnification shall be payable
pursuant to this Article VII if a court having jurisdiction in the
matter shall determine that such indemnification is not lawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful. No indemnification
shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court
in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
II-1
<PAGE>
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnify for such expenses which the Court of
Chancery or such other court shall deem proper.
The Registrant intends to maintain director and officer liability
insurance which would provide coverage against certain securities law
liabilities.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions, or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a Director, officer or
controlling person of the small business issuer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
Item 25. Other Expenses of Issuance and Distribution
- -----------------------------------------------------
The expenses payable by the Registrant in connection with the issuance
and distribution of the securities being registered (other than underwriting
discounts) are estimated as follows:
SEC Registration Fee..............................................$ 7,984
National Association of Securities Dealers, Inc. Fee..............$ 5,871
Underwriter's Non Accountable Expense Allowance...................$ 288,000
Printing and Engraving Expenses...................................$ 75,000
Legal Fees and Expenses...........................................$ 175,000
Accounting Fees and Expenses......................................$ 30,000
State Securities Qualification and Legal Fees.....................$ 25,000
Nasdaq Listing Fee................................................$ 17,500
Transfer Agent's Fee..............................................$ 5,000
Miscellaneous.....................................................$ 25,645
----------
Total: $ 655,000
==========
Item 26. Recent Sale of Unregistered Securities
- ------------------------------------------------
(a) In connection with the organization of the Company in October 1995, the
Company issued an aggregate of 6,694,080 shares of Common Stock to the then
existing shareholders of Viga Technologies Corporation ("Viga"), an entity
under common ownership for nominal consideration. Of such shares issued,
950,987; 679,276; 475,658; 475,658;339,474 and 67,105 shares were issued to
Dr. Maples and Messrs. Peterson, Murphy, Andrews, Durgin and Huberman,
respectively, who may be deemed founders of the Company.
(b) In December 1995, the Company sold, to four accredited investors, an
aggregate of four investment units (the "1995 Units") for $250,000 per 1995
Unit. Each 1995 Unit consisted of $249,900 face amount of 10% one-year
mandatory convertible promissory notes (the "1995 Notes") and warrants (the
"1995 Warrants") to purchase 8,224 shares of Common Stock at a price of $7.60
per share. The net proceeds of $900,000 were used to pay certain liabilities
assumed in connection with the acquisition of assets from Viga and to finance
the Company's operations. The 1995 Notes, which were unsecured, were
convertible into one share of Common Stock for each $7.60 face amount of the
1995 Note. Investors Associates, Inc. ("IAI") acted as placement agent for the
1995 Private Placement and received a selling commission of $100,000, and
warrants to purchase up to 16,448 shares of Common Stock at $7.60 per share.
In April 1996, the 1995 Notes were converted into an aggregate of 131,579
shares of Common Stock.
(c) From April through September 1996, the Company sold an aggregate of
250,921 shares of Common Stock at $7.60 per share to 21 accredited investors
(the "1996 Private Placement"). The net proceeds from the 1996 Private
Placement were approximately $1,700,000, which was used to pay ceratin notes
to Viga and for working capital. IAI
II-2
<PAGE>
acted as placement agent for the 1996 Private Placement, for which it received
a fee of $190,700 and warrants to purchase 121,710 shares of Common Stock at
$7.60 per share. The warrants expire five years from the date of issuance,
except that warrants to purchase 16,448 shares expire three years from the
date of issuance.
(d) In June 1997, the Company received net proceeds of $1,113,750 from the
issuance of notes (the "June 1997 Notes") in the principal amount of
$1,237,500 to 15 accredited investors (the "1997 Private Placement"). All of
the June 1997 Notes, and accrued interest thereon, were paid from the proceeds
of the April 1998 Private Placement (except $300,000 of such June 1997 Notes,
which were converted into equity on the same terms as the April 1998 Private
Placement). IAI acted as placement agent in connection with the placement of
the June 1997 Notes and received commissions equal to $123,750.
(e) In December 1997, in a private placement, the Company sold to 18
accredited investors units consisting of 8% promissory notes (the "December
1997 Notes") in the aggregate principal amount of $875,000 and an aggregate of
57,566 shares of Common Stock (the "December 1997 Shares"). The net proceeds
to the Company from the issuance and sale of the December 1997 Notes and
December 1997 Shares was approximately $688,000. The December 1997 Notes are
payable one year from the date of issuance, together with accrued interest
thereon. The Company will use a portion of the proceeds of this Offering to
pay the December 1997 Notes, together with accrued interest thereon. The
Company engaged Worthington Capital Group, Inc. ("Worthington") to act as
placement agent in connection with the December 1997 Private Placement. As
compensation for its services as placement agent, Worthington received a fee
of $138,750.
(f) In April and May 1998, the Company sold to 14 accredited investors, an
aggregate of 34.5 investment units, each unit consisting of 10,000 shares of
Common Stock and a warrant to purchase 10,000 shares of Common Stock, at a per
unit price of $45,000 (the "April 1998 Private Placement"). The net proceeds
of $1,372,250 were used to pay a portion of the June 1997 Notes. The Company
used the Underwriter to act as Placement Agent in connection with the April
1998 Private Placement. As compensation for Placement Agent, the Placement
Agent received a commission of 10% of the gross proceeds from the sale of the
units. In addition, the Company reimbursed the Placement Agent for its
expenses incurred in connection with the April 1998 Private Placement offering
of $25,000. Pursuant to the terms of the April 1998 Warrants, upon completion
of this Offering, the April 1998 Warrants will be automatically converted into
Warrants. All references in this Prospectus to the warrants issued in the
April 1998 Private Placement assume such automatic conversion. The Company has
given the holders of the Common Stock and warrants issued in the April 1998
Private Placement registration rights with respect to such shares and warrants
and the shares of Common Stock issuable upon exercise of such warrants.
(g) In July 1998, the Company sold 1,000,000 shares of Common Stock and
warrants (the "CRI Warrants") to purchase an additional 1,000,000 shares of
Common Stock to CRI for an aggregate purchase price of $8 million. An officer
of the Company was paid a commission of $520,000 in connection with this
transaction. The CRI Warrants are exercisable at $9.60 through June 30, 2003.
All of the transactions described above were sold to accredited
investors and are exempt from the registration requirements of the Securities
Act pursuant to Sections 3(b) or 4(2) thereof as transactions by an issuer not
involving a public offering.
Item 27. Exhibits
- ------------------
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Unit Purchase Option.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant.
4.1 Specimen Stock Certificate. *
4.2. Form of Warrant Agreement between the Registrant and
American Stock Transfer & Trust Company, including the
form of Class A Redeemable Common Stock Purchase Warrant.
II-3
<PAGE>
5.1 Securities Opinion of Proskauer Rose LLP. *
10.1 License Agreement dated October 9, 1995 between the Company
and Sandia, as amended. */**
10.2 Office Lease dated September 6, 1995 between the Company and
Airpark Associates, as amended.
10.3 1995 Stock Option Plan.
10.4 1996 Stock Option Plan.
10.5 Employment Agreement, dated as of June 1, 1998 between Creve
Maples and the Registrant. *
10.6 Employment Agreement, dated as of June 1, 1998, between
Craig Peterson and the Registrant. *
10.7 Employment Agreement, dated as of June 1, 1998, between
Curtiz J. Gangi and the Registrant. *
10.8 Employment Agreement, dated as of June 1, 1998, between
Brian Clark and the Registrant. *
10.9 Employment Agreement, dated as of June 1, 1998, between
Douglas Harless and the Registrant. *
23.1 Consent of Proskauer Rose LLP (included in Exhibit 5.1 of
this registration statement).
23.2 Consent of Feldman Sherb Ehrlich & Co., P.C. (formerly
Feldman Radin & Co., P.C.).
24.1 Powers of Attorney appear on the signature page in Part II
of the registration statement.
27.1 Financial Data Schedule.
- ---------------------
* To be filed by amendment
** Portions of this document have been deleted pursuant to a request for
confidential treatment.
Item 28. Undertakings
- ----------------------
The Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933, as amended (the "Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) That, for determining liability under the Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
II-4
<PAGE>
(4) To provide to the Underwriter at the closing specified
in the underwriting agreement certificates in such denominations and
registered in such names as required by the Underwriter to permit prompt
delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising
under the Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a
Director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(6) For determining any liability under the Securities
Act, to treat the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the small business issuer under Rule 424 (b)
(1), or (4) or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(7) For determining any liability under the Securities
Act, to treat each post-effective amendment that contains a form of prospectus
as a new registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of these securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Albuquerque, New Mexico on the 27th day of
August, 1998.
MUSE TECHNOLOGIES, INC.
By: s/Curtiz J. Gangi
----------------------------------
Curtiz J. Gangi, President
POWER OF ATTORNEY
Each of the undersigned hereby authorizes each of Curtiz J. Gangi and
Brian Clark as his attorney-in-fact to execute in the name of each such person
and to file such amendments (including post-effective amendments) to this
registration statement as the Registrant deems appropriate and appoints such
person as attorney-in-fact to sign on his behalf individually and in each
capacity stated below and to file all amendments, exhibits, supplements and
post-effective amendments to this registration statement.
In accordance with the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates stated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
s/Curtiz J. Gangi President and Director (Principal August 27, 1998
- ------------------------------
Curtiz J. Gangi Executive Officer)
s/Creve Maples Director August 27, 1998
- ------------------------------
Creve Maples
s/Brian Clark Chief Financial Officer (Principal August 27, 1998
- ------------------------------
Brian Clark Financial and Accounting Officer)
s/David Durgin Director August 27, 1998
- ------------------------------
David Durgin
s/Benjamin Huberman Director August 27, 1998
- ------------------------------
Benjamin Huberman
s/Edward A. Masi Director August 27, 1998
- ------------------------------
Edward A. Masi
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
-------- -----------
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Unit Purchase Option.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 By-Laws of the Registrant.
4.1 Specimen Stock Certificate. *
4.2. Form of Warrant Agreement between the Registrant and
American Stock Transfer & Trust Company, including the
form of Class A Redeemable Common Stock Purchase Warrant.
5.1 Securities Opinion of Proskauer Rose LLP. *
10.1 License Agreement dated October 9, 1995 between the Company
and Sandia, as amended. */**
10.2 Office Lease dated September 6, 1995 between the Company and
Airpark Associates, as amended.
10.3 1995 Stock Option Plan.
10.4 1996 Stock Option Plan.
10.5 Employment Agreement, dated as of June 1, 1998 between Creve
Maples and the Registrant. *
10.6 Employment Agreement, dated as of June 1, 1998, between
Craig Peterson and the Registrant. *
10.7 Employment Agreement, dated as of June 1, 1998, between
Curtiz J. Gangi and the Registrant. *
10.8 Employment Agreement, dated as of June 1, 1998, between
Brian Clark and the Registrant. *
10.9 Employment Agreement, dated as of June 1, 1998, between
Douglas Harless and the Registrant. *
23.1 Consent of Proskauer Rose LLP (included in Exhibit 5.1 of
this registration statement).
23.2 Consent of Feldman Sherb Ehrlich & Co., P.C. (formerly
Feldman Radin & Co., P.C.).
24.1 Powers of Attorney appear on the signature page in Part II
of the registration statement.
27.1 Financial Data Schedule.
- ---------------------
* To be filed by amendment
** Portions of this document have been deleted pursuant to a request for
confidential treatment.
<PAGE>
1,200,000 Units
MUSE TECHNOLOGIES, INC.
Each Unit consisting of one share of Common Stock and
one-half Class A Redeemable Common Stock Purchase Warrant
Underwriting Agreement
As of , 1998
HD Brous & Co, Inc.
40 Cuttermill Road
Great Neck, New York 11021
Dear Sirs:
Muse Technologies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to HD Brous & Co., Inc., a New York corporation
("Brous" or the "Underwriter"), upon the basis of the representations,
warranties, and agreements of the Company contained in this Underwriting
Agreement (the "Agreement") and, subject to the terms and conditions of this
Agreement, the Underwriter proposes to purchase from the Company, an aggregate
of 1,200,000 Units, each Unit to consist of one (1) share of the Company's
common stock, par value $.015 per share ("Common Stock"), and one-half (1/2)
Class A Redeemable Common Stock Purchase Warrants ("Warrant"). Each Warrant
entitles the holder to purchase one (1) share of Common Stock shall be
required for the purchase of one share of Common Stock at a price of $9.60 per
share, subject to adjustment. The 1,200,000 Units are hereinafter collectively
referred to as the "Firm Units." The Common Stock issuable upon exercise of
the Warrants are presently authorized but unissued shares of the Common Stock
of the Company. In addition, the Company proposes to grant the Underwriter the
option to purchase from the Company up to an additional 180,000 Units
(collectively "Option Units") solely for the purpose of covering
over-allotments, if any, in connection with the sale of the Firm Units. The
Company also proposes to issue and sell to the Underwriter or its designees,
Unit Purchase Options (the "Unit Purchase Options") to purchase 120,000 Units
(collectively the "Purchase Option Units") as more fully described in
Paragraph 5(a) of this Agreement. The Warrants included in the Firm Units, the
Option Units and the Purchase Option Units are referred to in this Agreement
collectively as the "Warrants." The Firm Units, Option Units and Purchase
Option Units are referred to in this Agreement collectively as the
"Securities."
The Company hereby confirms the agreement made by it with respect to
the purchase of the Firm Units and the Option Units by the Underwriter, as
follows.
<PAGE>
1. Purchase, Sale, and Delivery of the Securities
(a) Purchase and Sale of Firm Units. Subject to the terms
and conditions of this Agreement, and upon the basis of the representations
and warranties contained in this Agreement, the Company agrees to issue and
sell to the Underwriter, and Underwriter agrees to purchase from the Company,
the Firm Units at a price of seven and 20/100 dollars ($7.20) per Unit. The
Underwriter plans to offer the Firm Units for sale to the public at the price
and upon the terms set forth in the Prospectus (the "Public Offering") as soon
as practicable after the date the Registration Statement, as hereinafter
defined, is declared effective (the "Effective Date"). The Company
acknowledges that the Underwriter shall have the right to enter into
agreements with selected dealers for the sale of the Units to the public.
(b) Over-Allotment Option.
(i) The Company hereby grants to the Underwriter
an option (the "Over- Allotment Option") to purchase from the Company, solely
for the purpose of covering over-allotments in connection with the sale of
Firm Units, all or any portion of the Option Units for a period of forty-five
(45) days from the date of this Agreement at the same purchase price payable
by the Underwriter for Firm Units as provided in Paragraph 1(a) of this
Agreement. The Option Units shall be purchased from the Company, for the
account of Underwriter.
(ii) The Over-Allotment Option may be exercised
during the term thereof by written notice to the Company from the Underwriter.
Such notice shall set forth the aggregate number of Option Units as to which
the option is being exercised and the time and date of payment and delivery
therefor. Such time and date of delivery shall not be earlier than either the
Closing Date (as defined below) or the second business day after the day on
which the option shall have been exercised, nor later than the fifth business
day after the date of such exercise, as determined by the Underwriter (the
"Option Closing Date"). Delivery and payment for such Option Units shall be at
the offices set forth above for delivery and payment of the Firm Units.
(iii) The obligation of the Underwriter to
purchase and pay for any of the Option Units is subject to the accuracy and
completeness (as of the date of this Agreement and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company in this Agreement, to the accuracy and completeness
of the statements of the Company or its officers made in any certificate or
other documents to be delivered by the Company pursuant to this Agreement, to
the performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions as of the date
of this Agreement and as of the Option Closing Date, set forth in Paragraph
1(c) of this Agreement and to the delivery to the Underwriter an opinion,
certificates and letters dated the Option Closing Date substantially similar
in scope to those specified in Paragraph 6 of this Agreement, but with each
reference to the "Closing Date" being deemed to be the "Option Closing Date."
Notwithstanding the exercise of the Over-Allotment Option, the Underwriter
may, at any time prior to the payment for the purchase price of the Option
Units, cancel, in whole or in part, the exercise of the Over-Allotment Option,
in which event, the Underwriter shall only be obligated to purchase and pay
for those only Option Units, if any, remaining subject to the exercise of the
Over-Allotment Option after such cancellation.
- 2 -
<PAGE>
(c) Delivery of and Payment for Securities.
(i) Delivery of the stock and warrant
certificates representing the securities comprising the Firm Units shall be
made to the Underwriter at the offices of Brous, 40 Cuttermill Road, Great
Neck, New York 11021, or such other location as you shall determine and advise
the Company upon at least two (2) full business days' notice in writing,
against payment therefor by certified or bank cashier's check drawn in New
York clearing house funds or similar next day funds payable to the order of
the Company, at 10:00 A.M., Eastern Time, on ____________ ___, 1998, or at
such other time and business day (Saturdays, Sundays, and legal holidays in
New York, New York not being considered business days for the purposes of this
Agreement), not later than the 10th business day following the Effective Date,
as shall be agreed upon by you and the Company, which time and date are herein
called the "Closing Date."
(ii) Delivery of certificates for the Common
Stock and Warrants comprising the Units shall be made in registered form in
such name or names and in such denominations as you shall specify to the
Company upon at least two (2) full business days' notice in writing prior to
the Closing Date or the Option Closing Date, as the case may be. The Company
will make the certificates available to the Underwriter for examination at the
offices of Brous, 40 Cuttermill Road, Great Neck, New York 11021, Attention:
Howard D. Brous, Chairman, or at such other location as you shall specify to
the Company, not later than 2:00 P.M., Eastern Time, on the business day
immediately preceding the Closing Date or the Option Closing Date, as the case
may be.
(d) Use of Preliminary Prospectus. The Company hereby
confirms its authorization to the Underwriter to use, and to make available
for use by prospective dealers, the Preliminary Prospectus, and the Company
hereby authorizes the Underwriter, all selected dealers, and all other dealers
to whom any of the Securities may be sold by the Underwriter or Selected
Dealers, to use the Prospectus, as from time to time amended or supplemented,
in connection with the sale of the Securities in accordance with the
applicable provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the rules and regulations (the "Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder, and
applicable state law until completion of the Public Offering and for such
longer period as Underwriter may request if the Prospectus is required to be
delivered in connection with sales of the Securities by Underwriter or a
dealer.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) Filing of Registration Statement. The Company has
prepared in conformity with the requirements under the Securities Act and the
Regulations, and has filed with the Commission under the Securities Act, a
registration statement on Form SB-2, File No. 333- , including the related
preliminary prospectus, for the registration of the Securities. The conditions
for the use of a registration statement on Form SB-2 set forth in the General
Instructions thereto have been satisfied with respect to the Company, the
transactions contemplated by this Agreement, and the Registration Statement.
As used in this Agreement, the term "Registration Statement" means such
registration statement of the Company, as amended, on file with the Commission
at the time the registration statement becomes effective under the Securities
Act (including all financial statements and financial schedules, exhibits, all
other documents filed as a part thereof or incorporated by reference therein,
and all the information contained in any final
- 3 -
<PAGE>
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act or deemed by virtue of Rule 430A of this Commission under the
Securities Act to be part of the Registration Statement). The term
"Prospectus" as used in this Agreement means the final prospectus included as
part of the Registration Statement, including, if applicable, the information
contained in any final prospectus filed with the Commission pursuant to Rule
424(b) of the Commission under the Securities Act or deemed by virtue of Rule
430A of the Commission under the Securities Act to be part of the Registration
Statement. The term "Preliminary Prospectus" refers to and means any
prospectus included in the Registration Statement or any amendment thereto
prior to the Registration Statement becoming effective under the Securities
Act.
(b) Use and Accuracy of Preliminary Prospectus. The
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus or any part thereof, and each Preliminary Prospectus
delivered to the Underwriter for dissemination in connection with the
offering, at the time of filing thereof and delivery to the Underwriter for
such dissemination, did not contain any untrue statement of a material fact,
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; the foregoing shall not apply, however, to
statements in, or omissions from, any Preliminary Prospectus that are based
upon and conform to written information furnished to the Company with respect
to Underwriter (or any affiliate or associate thereof) by or on behalf of the
Underwriter or such Underwriter specifically for use in the preparation
thereof.
(c) Effectiveness and Accuracy of Registration Statement.
The Registration Statement and the Prospectus, from the Effective Date through
the Closing Date and, if Option Units are purchased, up to the Option Closing
Date, will comply in all material respects with the applicable requirements of
the Securities Act and the Regulations, and neither the Registration Statement
nor the Prospectus will, on such dates, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and, on such dates, no event will
have occurred that should have been set forth in an amendment or supplement to
the Registration Statement or the Prospectus that has not then been set forth
in such an amendment or supplement; the foregoing shall not apply, however, to
statements in, or omissions from, the Registration Statement or Prospectus
that are based upon and conform to written information furnished to the
Company with respect to Underwriter (or any affiliate or associate thereof) by
or on behalf of you or Underwriter specifically for use in the preparation
thereof. The descriptions in the Registration Statement and the Prospectus of
contracts and other documents of the Company are accurate and present fairly
the information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement under the Securities
Act or the regulations which have not been so described or filed as required.
(d) Independent Public Accountants. Feldman Sherb Ehrlich &
Co., P.C., the accountants whose reports on the financial statements of the
Company are filed with the Commission as a part of the Registration Statement,
are, and were during the periods covered by its report, independent public
accountants with respect to the Company as required by the Securities Act and
the Regulations.
- 4 -
<PAGE>
(e) Organization and Qualification. The Company is (i) a
corporation duly organized and existing in good standing under the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
to own its properties and to carry on its business as now being conducted and
(ii) qualified to conduct business as a foreign corporation to do business and
in good standing in every jurisdiction in which the nature of the business
conducted by it makes such qualification necessary and where the failure so to
qualify would have a Material Adverse Effect. The Company has no subsidiaries
and has no loans to or guarantee of obligations of any other corporation,
limited liability company, partnership or other entity. As used in this
Agreement, the term "Material Adverse Effect" means any material adverse
effect on (A) the Securities; (B) the ability of the Company to perform its
obligations under this Agreement or under the Securities or (C) the business,
operations, properties, financial condition or prospects of the Company.
(f) No Subsidiaries. The Company does not have any
subsidiaries, does not control, directly or indirectly, or have any direct or
indirect interest or investment in any corporation, firm, partnership,
association, limited liability company, business trust or other business
organization, and does not own any shares of stock or any other securities of
(other than bank certificates of deposit, shares or units of interest in
"money market" funds, or as set forth in the Prospectus) and the Company has
not made any loans (other than advances to employees in the ordinary course of
business, none of which are material or made to officers or directors) to or
guaranteed any obligations of, any other corporation, firm, partnership,
association, limited liability company, business trust or other business
organization.
(g) Capitalization and Legality of Securities. The
authorized, issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization." The capital stock
and other securities of the Company conform to the descriptions thereof
contained in the Prospectus under the caption "Description of Capital Stock."
Except as otherwise set forth in the Prospectus, there are no outstanding
options, warrants, or other rights to purchase any shares of Common Stock or
other capital stock, or to purchase any other securities convertible into or
exchangeable for Common Stock. The outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
All the shares of Common Stock and Warrants to be offered by the Prospectus,
or which comprise the Purchase Option Units, have been duly authorized and,
when issued and delivered against payment therefor as provided in this
Agreement, the Prospectus, or the Unit Purchase Options, as applicable, will
be validly issued, fully paid and nonassessable. The Unit Purchase Options
will constitute, when sold and delivered as contemplated, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
similar laws and court decisions now or hereafter in effect relating to or
affecting creditors' rights and remedies generally and (ii) general principles
of equity (regardless of whether such enforcement is considered in a
proceeding at law or in equity). A sufficient number of shares of Common Stock
have been reserved for issuance upon sale of the Securities and Purchase
Option Units and upon the exercise of all of the above-referenced Warrants.
(h) Financial Statements. The financial statements (audited
and unaudited) of the Company and the related financial exhibits and schedules
included in the Prospectus or filed with and as part of the Registration
Statement present fairly the financial position of the Company
- 5 -
<PAGE>
as of the balance sheet dates and the results of its operations and cash flows
for the respective periods then ended, and such financial statements have been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods involved; all adjustments that
are necessary for a fair presentation of the results for such periods have
been made. The financial statements filed with the Registration Statement or
included in the Prospectus are the only financial statements required under
the Securities Act or the Regulations to be included in the Registration
Statement and Prospectus.
(i) Material Loss. The Company has not, since the date of
the latest financial statements included in the Prospectus, sustained any
material loss or interference with its business from fire, explosion, flood,
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order, or decree, other than as set
forth in the Prospectus. Since the respective dates as of which information is
set forth in the Prospectus, and except as otherwise set forth therein: (i)
there has not been any change in the capital stock, or material increase in
the long-term debt, of the Company; (ii) there has not been any material
adverse change in the condition (financial or otherwise), business, prospects
(financial or otherwise), results of operations, general affairs, or
management of the Company, whether or not arising in the ordinary course of
business; (iii) no event has occurred that would result in a material
write-down of assets of the Company; (iv) the Company has not incurred any
material liability or obligation, direct or contingent, or entered into any
material transaction, other than those in the ordinary course of business; (v)
the Company has not purchased any of its outstanding capital stock; (vi) there
has been no dividend or distribution of any kind declared, paid, or made by
the Company in respect of the Common Stock; (vii) there has not been any
material interruption in the availability of materials, supplies, or equipment
necessary for the conduct of the business of the Company; and (viii) there has
not been any execution or imposition of any material lien, charge, or
encumbrance upon any property or assets of the Company.
(j) Compliance with Documents and Laws. The Company is not
in violation of its Certificate of Incorporation, By-Laws, or other governing
documents, or in material default in the due performance of any material lease
or other material contract, indenture, mortgage, deed of trust, note, loan, or
other material agreement or instrument to which the Company is a party or by
which it or any of its properties or businesses are subject or, to the best
knowledge of the Company, any applicable material license, franchise,
certificate, permit, authorization, statute, rule or regulation of or from any
public, regulatory, or governmental agency or authority having jurisdiction
over the Company or any of its properties or assets, or any approval, consent,
order, judgment or decree, except such as could not reasonably be expected to
have a material adverse effect on the condition (financial or otherwise),
earnings, business, assets, results of operations, or prospects (financial or
otherwise) of the Company (hereinafter a "Material Adverse Effect"). The
execution and performance of this Agreement by the Company will not conflict
with or result in a breach or violation of, or default under, any material
lease or other material contract, indenture, mortgage, deed of trust, note,
loan, or other material agreement or instrument to which the Company is a
party or by which the Company or any of its properties or businesses are
subject, and no consent, approval, authorization, or order of any court or
governmental authority or agency having jurisdiction over any of the Company
or any of its properties or assets is required to be obtained by the Company
for the consummation by the Company of the transactions contemplated by this
Agreement, except such as have been obtained or may be required under the
Securities Act or the Regulations or under state securities (or "Blue Sky")
laws or the applicable rules and regulations promulgated thereunder.
- 6 -
<PAGE>
(k) Authorization of Agreements. Each of this Agreement, the
Warrant Agreement, the Warrant, the Unit Purchase Options, the Financial
Consulting Agreement, as hereinafter defined, and the M/A Agreement, as
hereinafter defined, has been duly authorized, executed, and delivered by the
Company and constitutes the valid and binding obligation of the Company. The
execution, delivery and performance of this Agreement, the Warrant Agreement,
the Warrants, the Unit Purchase Options, the Financial Consulting Agreement
and the M/A Agreement, by the Company, the consummation by the Company of the
transactions herein and therein contemplated, and the compliance by the
Company with the terms of this Agreement, the Warrant Agreement, the Warrants,
the Unit Purchase Options, the Financial Consulting Agreement and the M/A
Agreement, have been duly authorized by all necessary corporate action and do
not and will not, with or without the giving of notice or the lapse of time,
or both, (i) result in any violation of the Certificate of Incorporation and
By-Laws of the Company, (ii) result in a breach of or conflict with any of the
terms or provisions of, or constitute a default under, or result in the
modification or termination of, or result in the creation or imposition of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of the Company pursuant to any indenture, mortgage, note, contract,
commitment or other agreement or instrument to which the Company is a party
over which the Company or any of its properties or assets are or may be bound
or affected, (iii) violate any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
business, or (iv) violate any permit, certification, registration, approval,
consent, license or franchise applicable to the business or properties of the
Company.
(l) Title to Property. The Company has good and marketable
title to, and valid and enforceable leasehold estates in, all items of
property described in the Registration Statement or Prospectus as owned or
leased by it, as the case may be, or that are material to the conduct of the
Company's businesses, free and clear of all liens, encumbrances, claims,
security interests, and other restrictions, other than those described in the
Prospectus and those that individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect. The leases, licenses
or other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid, subsisting and
enforceable only with such exceptions as are not material and do not interfere
with the use of such property made, or proposed to be made, by the Company,
and all rentals, royalties or other payments accruing thereunder which became
due prior to the date of this Agreement have been duly paid, and neither the
Company nor, to the best of its knowledge, any other party is in default
thereunder and, to the best of the Company's knowledge, no event has occurred
which, with the passage of time or the giving of notice, or both, would
constitute a default thereunder. The Company has not received notice of any
violation of any applicable law, ordinance, regulation, order or requirement
relating to its owned or leased properties except any such violation that
could not reasonably be expected to have a Material Adverse Effect. The
Company and has insured their respective properties against loss or damage by
fire or other casualty and maintain such other insurance which management of
the Company believes is adequate for the Company's present and proposed
business operations.
(m) Copyrights, Trademarks and Intellectual Property Rights.
Except as set forth in the Prospectus, the Company owns or possesses the
requisite licenses or rights to use all trademarks, copyrights, service marks,
service names, and trade names, if any, presently used in or necessary to
conduct their respective businesses as described in the Prospectus. The
Company has not knowingly infringed the rights of another in any trademark,
copyright, service
- 7 -
<PAGE>
mark, service name, trade name, trade secret, confidential information, or any
other such intellectual property, and there is no outstanding claim of others
alleging any such infringement. There is no claim or action by any person
pertaining to, or proceeding pending, or threatened, which challenges the
exclusive rights of the Company with respect to any trademarks, copyrights,
service marks, service names and trade names used in the conduct of the
Company's business.
(n) Litigation. There is no litigation or governmental or
other proceeding or investigation before any court or before or by any public,
regulatory, or governmental agency or authority (or any judgment, decree, or
order of such court, agency, or authority) pending or, to the best knowledge
of the Company, threatened, to which the Company is a party or of which the
business or property of the Company is the subject that is material to the
Company and is not properly disclosed in the Prospectus. There are no
outstanding orders, judgments or decrees of any court, governmental agency or
other tribunal naming the Company and enjoining the Company from taking, or
requiring the Company to take, any action, or to which the Company or its
respective properties or businesses are bound or subject.
(o) Prohibited Payments. Neither the Company nor any of its
directors or officers acting in any capacity on behalf of the Company nor, to
the Company's knowledge after due inquiry, any of its foreign sales agents,
directly or indirectly, has used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns from corporate funds; violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff,
influence payment, kickback, or other unlawful payment.
(p) Internal Accounting Controls. The Company maintains a
system of internal accounting controls which, taken as a whole, is sufficient
to meet the broad objectives of preventing and detecting errors or
irregularities in amounts that would be material to the Company's financial
statements. Except as specifically disclosed in the Prospectus, neither the
Company nor any of its employee or agent has made any payment or transfer of
any funds or assets of the Company, conferred any personal benefit by the use
of the assets of the Company or received any funds, assets, or personal
benefit in violation of any law, rule, or regulation, which is required to be
stated in the Prospectus or necessary to make the statements therein not
misleading.
(q) Tax Returns. The Company has filed all Federal, state,
and local tax returns required to be filed through the date of this Agreement,
including but not limited to franchise tax returns, or has obtained valid
extensions with respect to such filings not made; the Company is not in
default in the payment of any taxes or other amounts that were payable
pursuant to said returns or any assessments with respect thereto; and the
Company is not aware of any tax or other payment deficiency outstanding,
proposed, or assessed against the Company that could, in the aggregate, have a
Material Adverse Effect. Except as disclosed in writing to the Underwriter,
the Company has not executed or filed with any taxing authority, foreign or
domestic, any agreement extending the period for assessment or collection of
any income taxes and is not a party to any pending action or proceeding by and
foreign or domestic governmental agency for assessment or collection of taxes;
and no claims for assessment or collection of taxes have been asserted against
the Company.
- 8 -
<PAGE>
(r) Employee Plans. Except as set forth in the Prospectus,
the Company does not have any employee benefit plans (including, without
limitation, pension, profit sharing, and welfare benefit plans) or deferred
compensation arrangements.
(s) Labor Disputes. No labor dispute exists or, to the best
knowledge of the Company, is imminent with the employees or other persons
engaged by the Company which could reasonably be expected to result in a
Material Adverse Effect.
(t) Registration Rights. Except for the Selling
Securityholders, as described in the Prospectus under the caption "Sales by
Selling Securityholders," no person, firm or entity of any nature whatsoever
has any right to require the Company to register or attempt to register under
the Securities Act or any other securities law any shares of Common Stock or
securities convertible into or exchangeable or exercisable for any shares of
Common Stock, by reason of the filing of the Registration Statement with the
Commission or otherwise or which may require the Company to file a
registration statement within eighteen (18) months from the Effective Date.
(u) Stabilization. Neither the Company nor any person that
controls, is controlled by or is under common control with the Company has
taken or will take, directly or indirectly, any action designed to, or that
might reasonably be expected to, cause or result in under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), stabilization or
manipulation of the price of any security in order to facilitate the sale or
resale of any of the Securities.
(v) Finder or Broker. The Company has not retained or dealt
with any broker or finder with respect to the transactions contemplated
hereby, and the Company knows of no outstanding claims for services in the
nature of a finder's fee or origination fee with respect to the sale of the
Securities. The Company will indemnify and hold harmless Underwriter with
respect to any claim for a finder's fee by any party claiming to be owed such
fee based on contacts, conversations or arrangements with the Company.
(w) Employment Agreements. The employment agreements between
the Company and its officers named under the caption "Management -- Employment
Agreements" in the Prospectus, are binding and enforceable obligations upon
the respective parties thereto in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws or arrangements affecting
creditors' rights generally and subject to principles of equity, and public
policy considerations. Except for such employment agreements, the Company does
not have any employment, severance or similar agreement with any officers,
directors or employees.
(x) Contracts. Each contract or other instrument (however
characterized or described) to which the Company is a party or by which it or
its property or business is or may be bound or affected and to which reference
is made in the Prospectus has been duly and validly executed by the Company,
is in full force and effect in all material respects and, assuming that each
other party has full power, corporate or other, to execute, deliver and
perform such contracts, is enforceable against the parties thereto in
accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of
time or the giving
- 9 -
<PAGE>
of notice, or both, would constitute a default thereunder. None of the
material provisions of such contracts or instruments violates any existing
applicable law, rule, regulation, judgment, order or decree of any
governmental agency or court having jurisdiction over the Company or any of
its assets or businesses, where such violation or default would have a
Material Adverse Effect.
3. Covenants of the Company. The Company covenants and agrees with
the Underwriter that:
(a) Effectiveness of Registration Statement. The Company
will use its best efforts to cause the Registration Statement and any
subsequent amendments thereto to become effective as promptly as possible. The
Company will notify you promptly (i) when the Registration Statement or any
subsequent amendment thereto has become effective or any supplement to the
Prospectus has been filed and (ii) of the receipt of any requests, and the
nature and substance thereof, by the Commission for any amendment or
supplement to the Registration Statement or Prospectus or for any other
additional information. The Company will prepare and file with the Commission,
promptly upon your reasonable request, any amendments or supplements to the
Registration Statement or Prospectus that may be necessary or advisable in
connection with the distribution of the Securities or any of the Securities.
The Company will file no amendment or supplement to the Registration Statement
or Prospectus (other than any document required to be filed under the Exchange
Act that upon filing is deemed to be incorporated by reference therein) to
which you shall reasonably object by notice to the Company after having been
furnished a copy within a reasonable time, but no later than three (3)
business days, prior to the proposed filing thereof. The Company will furnish
to you at or prior to the filing thereof a copy of any document that upon
filing is deemed to be incorporated by reference in whole or in part in the
Registration Statement or Prospectus.
(b) Notice of Stop Order. The Company will advise you
promptly, and confirm in writing, when and if it receives notice or obtains
knowledge of (i) the issuance by the Commission of any stop order or other
order preventing or suspending the use of any Preliminary Prospectus or the
Prospectus or the effectiveness of the Registration Statement, (ii) the
suspension of the qualification of any of the Securities for offering or sale
in any jurisdiction in which they were previously qualified, or (iii) the
initiation or threat of any proceeding for that purpose. The Company will
promptly use its reasonable best efforts to prevent the issuance, and to
obtain the withdrawal if such issuance is not prevented, of any such stop
order or other suspension.
(c) Compliance with the Securities Act and the Exchange Act.
Within the time during which a prospectus relating to the Securities is
required to be delivered under the Securities Act, the Company will use its
best efforts to comply with all requirements imposed upon it by the Securities
Act and the Exchange Act, as now and hereafter amended, and by the
Regulations, as from time to time in force to permit the continuance of sales
of or dealings in the distribution of the Securities as contemplated by the
provisions therein, in this Agreement, and in the Prospectus. If during such
period any event as to which the Company has knowledge occurs as a result of
which the Prospectus as then amended or supplemented includes an untrue
statement of a material fact or omits to state a material fact necessary to
make the statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the
Securities Act, the Company will notify you promptly, will amend the
Registration Statement
- 10 -
<PAGE>
or supplement the Prospectus to comply with the Securities Act, the Company
will notify you promptly, will amend the Registration Statement or supplement
the Prospectus (at the expense of the Company) so as to correct such statement
or omission or otherwise to effect such compliance, and will furnish without
charge to Underwriter and to any dealer in securities as many copies of such
amended or supplemented Prospectus as you may from time to time reasonably
request.
(d) Copies of Registration Statement. The Company will
deliver to Underwriter, from time to time without charge, such number of
copies of the Registration Statement (at least one of which delivered to you
shall be manually signed and will include all exhibits), each Preliminary
Prospectus, the Prospectus, and all amendments and supplements thereto, in
each case as soon as available and in such quantities and to such persons as
requested by you.
(e) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with you and your counsel, to register or qualify the
Securities for offering and sale under the securities laws of such
jurisdictions as you reasonably designate, and will continue such
qualifications in effect for so long as may be necessary to complete the
distribution of such Securities; provided that in no event shall the Company
be required in connection therewith to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
would subject it to general service of process in any jurisdiction where it is
not now so subject.
(f) Section 11(a) Earnings Statement. The Company will make
generally available to its security holders (within the meaning of Section
11(a) of the Securities Act) and deliver to you as soon as practicable (but
not later than fifteen (15) months after the Effective Date), an earnings
statement that shall satisfy the requirements of Section 11(a) and Rule 158
under the Securities Act, covering a period of at least twelve (12)
consecutive months after the Effective Date.
(g) Information to the Underwriter. Until the earlier of the
fifth anniversary of the Effective Date or such date as of which the Warrants
and the Unit Purchase Options have been exercised or have expired, the Company
will furnish or cause to be furnished to you and your counsel, with reasonable
promptness, copies of (i) annual audited balance sheets and audited statements
of operations and changes in cash flows of the Company, and quarterly balance
sheets and statements of income of the Company (which need not be audited),
(ii) all reports, if any, to its stockholders, (iii) all reports filed by the
Company with the Commission, and any securities exchange or the National
Association of Securities Dealers, Inc. ("NASD") and (iv) such other material
documents and information with respect to the Company and its affairs as you
may from time to time reasonably request and which the Company can produce at
reasonable cost; provided, however, that the Company shall not be required to
produce such information or documents if the Company has received a written
opinion of its counsel that providing such information to Underwriter is
reasonably likely to create liability under applicable Federal and state
securities laws and a copy of such opinion is furnished to Underwriter. Upon
request of the Underwriter, the Company shall cause its transfer agent to
provide the Underwriter with copies of the Company's monthly transfer sheets
and Depository Trust Company transfer sheets. Upon request, the Company shall
also provide the Underwriter with current lists of its stockholders.
- 11 -
<PAGE>
(h) Listing in Securities Manual; Investor Relations Firm.
The Company shall, as soon as practicable after the Effective Date, use its
reasonable best efforts to obtain listing on an expedited basis in Standard
and Poor's Corporation Records or such other recognized securities manuals for
which it may qualify for listing, and the Company shall use its reasonable
best efforts to maintain such listings for at least five (5) years after the
Closing Date. The Company further agrees at any time during the five (5) year
period following the Closing Date, to engage within sixty (60) days of a
written request by you, the services of an investor relations firm reasonably,
acceptable to you, who will act as investor relations liaison during such five
(5) year period, which spokesperson is not required to be the same person
during the duration of the five (5) year period, to consult with and advise
the Company regarding communications and relations with stockholders and the
financial and investment communities.
(i) Listing on Nasdaq and Boston Stock Exchange. The Company
shall apply for the inclusion of the Units, Common Stock and Warrants on The
Nasdaq SmallCap Market (the "SmallCap Market") and, if requested by the
Underwriter, the Boston Stock Exchange ("BSE") under proposed symbols
acceptable to the Underwriter, to take effect on the Effective Date; provided,
that if the Common Stock and Warrants are not separately transferable on the
Effective Date, then the Common Stock and Warrants need not be included in the
SmallCap Market at such date; provided, however, that, on the date on which
the Common Stock and Warrants first become separately transferable, the Common
Stock and Warrants are listed on the Small Cap Market. At such time as the
Company meets the eligibility requirements for the inclusion of the Common
Stock and Warrants on the Nasdaq National Market ("NNM"), the Company shall
use its best efforts to obtain such listing. The Company shall use its best
efforts to maintain the Nasdaq inclusion provided for in this Paragraph 3(i)
for at least five (5) years after the date of this Agreement.
(j) Exchange Act Filings. The Company shall file such
registration statement and take such other action to register Common Stock and
the Warrants pursuant to Section 12(g) of the Exchange Act, such registration
statement to become effective simultaneously with the effectiveness of the
Registration Statement, and shall thereafter keep such registration effective.
The Company shall comply with the Securities Act, the Regulations, the
Exchange Act and the rules and regulations promulgated Commission under the
Exchange Act, the applicable rules and regulations of the NASD and BSE, and
applicable state securities laws so as to permit the continuance of sales of
and dealings in the Securities in compliance with applicable provisions of
such laws, rules, and regulations, including the filing with the Commission
and the NASD and BSE of all reports required to be so filed, and the Company
will deliver to the holders of the Securities all reports required to be
provided to such holders pursuant to such laws, rules, or regulations. The
Company shall promptly file with the Commission and deliver to you, from time
to time as required to make the same reasonably current, such statements and
reports as are required under Rule 15c2-11 of the Exchange Act.
(k) Use of Proceeds. The Company shall apply the net
proceeds received from the sale of the Securities in the manner set forth
under the caption "Use of Proceeds" in the Prospectus. The Company report the
use of proceeds from the Offering in accordance with Rule 463 of the
Regulations and will provide a copy of each such report to you and your
counsel.
(l) Board Meetings and Membership. For a period of five (5)
years commencing on the Closing Date, the Underwriter shall have the right to
designate one nominee
- 12 -
<PAGE>
(reasonably acceptable to the Company) for election to the Company's Board of
Directors. The Company shall cause the officers, directors and holders of five
percent (5%) or more of the outstanding Common Stock of the Company to agree
in writing at or prior to the Closing Date to vote their shares during such
five (5) year period in favor of the election of such nominees. Following the
election of such nominees as directors, such person shall receive no more or
less compensation than is paid to other non-employee directors of the Company
for attendance at meetings of the Board of Directors of the Company and shall
be entitled to receive reimbursement for all reasonable costs incurred in
attending such meetings including, but not limited to, food, lodging and
transportation. The Company agrees to indemnify and hold such director
harmless to the maximum extent permitted by law, against any and all claims,
actions, awards and judgments arising out of his service as a director and, in
the event the Company maintains a liability insurance policy affording
coverage for the acts of its officers and directors, to include such director
as an insured under such policy. The rights and benefits of such
indemnification and the benefits of such insurance shall, to the extent
possible, extend to the Underwriter insofar as it may be or may be alleged to
be responsible for such director, without additional cost to the Company.
(m) Future Sales. Except for the permitted issuances, for a
period of two years from the Effective Date, the Company shall not sell or
otherwise dispose of any Common Stock (or securities convertible into or
exercisable for Common Stock) or Preferred Stock of the Company or any
subsidiary of the Company without the Underwriter's prior written consent.
Permitted issuance shall mean shares of Common Stock issuable (i) upon the
exercise of options or warrants specifically contemplated in the Registration
Statement or provided for in this Agreement, (ii) pursuant to and in order to
consummate a merger with or acquisition from an unaffiliated party in a
transaction negotiated at arms' length and approved by (A) a majority of the
Company's Board of Directors, and (B) all of the non-employee directors; (iii)
in a public offering approved by the Underwriter, and (iv) pursuant to a
private placement, at a price per share, or, with respect to convertible
securities and warrants, having an exercise or conversion price, not less than
90% of the average of the closing bid prices of the Common Stock for ten (10)
consecutive trading days ending not earlier than five (5) days prior to the
date of such sale or on other terms acceptable to the Underwriter.
(n) Press Releases. Prior to the later of the Closing Date
or the Option Closing Date, if any, the Company will not issue, directly or
indirectly, without your prior written consent (which consent shall not be
unreasonably withheld), any press release or other public communication or
hold any press conference with respect to the Company, its activities, or the
public offering, other than trade releases in the ordinary course of the
Company's business.
(o) Undertakings. The Company will comply with the
provisions of all undertakings contained in the Registration Statement or made
in connection with any application to register or qualify any of the
Securities under blue sky laws.
(p) Certain Deliveries to the Underwriter. The Company will
use its best efforts to obtain from its officers, counsel, and accountants
those certificates, opinions, and letters referred to in Paragraphs 6 of this
Agreement.
(q) Key Man Life Insurance. The Company will use its best
efforts to obtain on or before the Closing Date, and maintain thereafter for
the term of their respective employment with the Company, key man life
insurance policies insuring the lives of Dr. Creve Maples and
- 13 -
<PAGE>
Messrs. Curtiz J. Gangi and Craig Peterson, with the Company named as sole
beneficiary, in a policy amount of not less than $1,000,000, $500,000 and
$500,000, respectively.
(r) Employment Agreements. The Company has entered into
employment agreements with Dr. Creve Maples and Messrs. Curtiz J. Gangi,
Douglas Harless, Brian Clark and Craig Peterson on the terms that are
disclosed in the Prospectus.
(s) Redemption and Dividends. For a period of two (2) years
from the Closing Date, the Company shall not redeem any of its securities
(other than redemptions that may be required in connection with possible
termination of employment agreements with the Company under the terms of
Employment Agreements in effect on the Effective Date and repurchases of
Warrants, or as otherwise provided in this Agreement), and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived
after the Closing Date, without obtaining the Underwriter's prior written
consent, which consent shall not be unreasonably withheld. The Underwriter
shall either approve or disapprove such contemplated redemption of securities
or dividend payment or distribution within ten (10) business days from the
date the Underwriter receives written notice of the Company's proposal with
respect thereto; a failure of the Underwriter to respond within the ten (10)
business day period shall be deemed approval of the transaction. Nothing in
this Paragraph 3(s) shall be construed to prohibit the Company from calling
the Warrants for redemption subsequent to one year from the Effective Date.
(t) Restrictions on Sales, Options by Affiliates. The
Company will cause each of its officers, directors, five percent (5%)
stockholders and other major stockholders designated by the Underwriter to
agree in writing that such person (i) will not, during the twelve (12) month
period immediately following the Effective Date (the "Lockup Period"), offer,
pledge, sell (which term includes a short sale or sale against the box),
contract to sell, grant any option for the sale of, or otherwise transfer or
dispose of, directly or indirectly, any shares of the Company's Common Stock
without obtaining the Underwriter's prior written approval.
(u) Outstanding Warrants, Options and Other Rights. Unless
the Underwriter has given its written consent prior to the Effective Date,
which consent shall not be unreasonably withheld, there shall not be
outstanding on the Closing Date any warrants, options, or other rights to
purchase any shares of Common Stock, except as otherwise set forth in the
Prospectus. During the three (3) years following the Effective Date, the
Company shall not, without the prior written consent of the Underwriter, grant
options, rights or warrants or sell any securities to its officers, directors,
employees or consultants under its stock option plans as described in the
Prospectus or otherwise except at an exercise, purchase or conversion price
which is not less than the market price of the Common Stock on the date of
grant, issuance or sale, as the case may be.
(v) Restrictions on Filing Registration Statements. During
the eighteen (18) months following the Effective Date, the Company will not,
without the prior written consent of the Underwriter, register any securities
pursuant to the Securities Act, except that such restriction shall not apply
to the registration of Common Stock issuable pursuant to the Company's present
stock option plans, as described in the Prospectus, on a Form S-8 registration
statement.
- 14 -
<PAGE>
(w) Right of First Refusal. The Company, its officers,
directors and 5% stockholders agree that the Underwriter shall have, for a
period of eighteen (18) months from the Effective Date, the right to purchase
for the Underwriter's account or to sell for the account of the Company, its
subsidiaries or any of the Company's executive officers and directors or five
percent (5%) stockholders (the "Affiliates") any securities with respect to
which the Company or any of the Affiliates may seek a public offering of the
Company's securities pursuant to a registration under the Securities Act or
otherwise (including a sale pursuant to Rule 144 of the Securities Act) or a
private offering of the securities. The Company and the Affiliates will
consult with the Underwriter with regard to any such offering and will offer
the Underwriter exclusively the opportunity to purchase, sell or act as
underwriter or placement agent for the purchase or sale of, any such
securities on terms not less favorable to the Company or the Affiliates, as
the case may be, than they can secure elsewhere. If the Underwriter fails to
accept in writing such proposal for financing made by the Company or the
Affiliates within thirty (30) days (three (3) business days with respect to
proposed sales under said Rule 144) after the receipt of a notice containing
such proposal, then the Underwriter shall have no further claim or right with
respect to the financing proposal contained in such notice. If, thereafter,
such proposal is modified in any material respect, the Company or the
Affiliates shall adopt the same procedure as with respect to the original
proposal. If the Underwriter does not avail itself of such opportunity to act
as underwriter or placement agent, this will not affect any preferential
rights for future financings during the term of this the eighteen (18) month
period. The Company and the Affiliates acknowledge that any violation of the
Underwriter's right of first refusal would cause irreparable harm to the
Underwriter and agree that the Underwriter shall be entitled to injunctive
relief to prevent any violation of the provisions of this Paragraph 3(w). The
Company represents and warrants that no other person or entity has any rights
to participate in any offer, sale or distribution of securities with respect
to which the Underwriter shall have preferential rights pursuant to this
Agreement. The Underwriter may exercise the right of first refusal granted
pursuant to this Paragraph 3(w) either on its own behalf or together with
another firm or firms designated by the Underwriter.
(x) Waiver of Registration Rights. The Company shall obtain
a waiver of so-called "piggy-back" registration rights from any holders of any
securities of the Company who have the right to require inclusion of any or
all of their securities in the Registration Statement contemplated by this
Agreement, except that, with respect to the shares listed as being sold by the
Selling Securityholders in the Prospectus, the Company shall obtain the
agreement of the holders of such shares not to sell or otherwise transfer or
distribute such shares except as disclosed in the Prospectus.
(y) Directors and Officers Liability Insurance. Within
ninety (90) days after the effective date of the Registration Statement, the
Company will use its best efforts to obtain Directors and Officers Liability
Insurance in an amount no less than $5,000,000, so long as the cost thereof is
reasonable, as determined by the Board of Directors.
(z) Accounting Firm. The Company shall retain an independent
public accounting firm reasonably acceptable to the Underwriter for a period
of five years from the Effective Date. The Underwriter agrees that the firm of
Feldman Sherb Ehrlich & Co., P.C. is acceptable to the Underwriter. In
addition, for a period of two years from the Effective Date, the Company, at
its expense, shall cause its independent accounting firm to review, but not
audit, the Company's financial statements for each of the first three fiscal
quarters prior to the
- 15 -
<PAGE>
announcement of quarterly financial information, the filing of the Company's
quarterly report on Form 10-QSB and the mailing of quarterly financial
information to stockholders, if applicable.
(aa) Restrictions on Acquisitions. During the eighteen (18)
months following the Closing Date, without the prior consent of the
Underwriter, the Company shall not enter into any agreement to acquire any
other business or the assets of any other business. The term "acquire" shall
be broadly construed and shall include the acquisition of assets, the merger
with or into another corporation or entity, whether directly by the Company or
through a subsidiary, or the acquisition of stock or other equity interests,
however defined, of another corporation, partnership, limited liability
company, business trust, sole proprietorship or other entity of any kind or
description.
4. Offering Expenses and Related Matters
(a) General. Whether or not the Public Offering is
consummated, the Company will pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including without
limiting the generality of the foregoing, (i) the preparation, printing,
filing, and copying of the Registration Statement, Prospectus, this Agreement,
blue sky memoranda, the Agreement Among Underwriter, if any, the Selected
Dealers Agreement, and other underwriting documents, if any, and any drafts,
amendments or supplements thereto, including the cost of all copies thereof
supplied to the Underwriter in such quantities as reasonably requested by the
Underwriter, the costs of mailing Prospectuses to offerees and purchasers of
the Securities, and the out-of-pocket travel expenses of the Underwriter and
counsel to the Underwriter or other professionals designated by the
Underwriter to visit the Company's facilities for purposes of discharging due
diligence responsibilities; (ii) the printing, engraving, issuance and
delivery of certificates representing Common Stock and Warrants, including any
transfer or other taxes payable thereon; (iii) the registration or
qualification of the Securities under state securities or "blue sky" laws,
including the reasonable fees and disbursements of counsel (regardless of
whether such counsel is also counsel to the Underwriter, subject to the
limitation set forth in Paragraph 4(c) of this Agreement) and filing fees in
connection therewith; (iv) all reasonable fees and expenses of the Company's
counsel and accountants; (v) all costs, expenses and filing fees in connection
with review of the terms of the Public Offering by the NASD; (vi) all costs
and expenses of any listing of the Securities, Common Stock and Warrants on
the SmallCap Market or the NNM and/or a stock exchange and/or in Standard and
Poor's Stock Guide and/or any other securities manuals; (vii) all costs and
expenses of four (4) bound volumes provided to the Underwriter and its counsel
of all closing documents, paper exhibits, correspondence and records forming
the materials included in the Public Offering; (viii) the reasonable costs and
expenses of all pre-closing and post-closing advertisements relating to the
Public Offering (such as tombstone adds) up to an aggregate of $20,000, in
addition to fifteen (15) lucite cubes;(ix) all costs of holding informational
meetings and "road shows;" and (x) all other costs and expenses incurred or to
be incurred by the Company in connection with the transactions contemplated by
this Agreement. The obligations of the Company under this Paragraph 4(a) shall
survive any termination or cancellation of this Agreement.
(b) Non-Accountable Expense Allowance. In addition to the
Company's responsibility for payment of the foregoing expenses, the Company
shall pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds of the Public Offering, including in
such amount the proceeds from any sale of Option Units. The
- 16 -
<PAGE>
non-accountable expense allowance due shall be paid at the Closing Date and
any Option Closing Date, as applicable, and shall include fees and
disbursements of Underwriter's counsel (exclusive of legal fees for state
registration and qualification as provided in Paragraph 4(c) of this
Agreement), but shall not include fees of the Company's counsel, state
registration filing fees, NASD filing fees, Nasdaq listing fees, printing and
mailing to members of the underwriting or selling group, and any and all other
expenses customarily paid by the issuer in a public offering of securities.
You hereby acknowledge your prior receipt from the Company
of $10,000, which amount shall be applied to the non-accountable expense
allowance due when and if the Public Offering is closed. If the Public
Offering does not close, then any portion of such amount in excess of your
accountable reimbursable expenses shall be returned promptly by you to the
Company.
(c) Compliance with Blue Sky Laws. You shall determine in
which states or jurisdictions the Securities shall be registered or qualified
for sale. Copies of all applications and related documents for the
registration or qualification of securities (except for the Registration
Statement and Prospectus) filed with the various states shall be supplied to
the Company's counsel not later than one business day following their
transmission to the various states, and copies of all comments and orders
received from the various states shall be made available promptly to the
Company's counsel. Immediately prior to the Effective Date, counsel for the
Underwriter shall advise counsel for the Company in writing of all states in
which the offering has been registered or qualified for sale or has been
canceled, withdrawn, or denied, the date of each such event, and the number of
Securities registered or qualified for sale in each such state. The Company
shall be responsible for the cost of state registration or qualification
filing fees and the legal fees of Underwriter's counsel in connection with
such filings, which filing fees are payable to Underwriter's counsel in
advance of such filings. The legal fees of Underwriter's counsel payable by
the Company with respect to blue sky filings be forty thousand dollars
($40,000), of which twenty thousand dollars ($20,000) has been paid. The
Company hereby acknowledges that any remaining balance with respect to legal
fees or blue sky filing fees is immediately due and payable.
5. Unit Purchase Options; Other Financial Arrangements
(a) Unit Purchase Options. On the Closing Date, the Company
will sell to the Underwriter, for an aggregate price of $100, Unit Purchase
Options to purchase an aggregate of one hundred twenty thousand (120,000)
Units from the Company at an exercise price equal to one hundred twenty
percent (120%) of the public offering price of the Units. The Unit Purchase
Options and the underlying securities shall be non-transferable (other than to
officers or partners of members of the underwriting or selling group or as
otherwise may be permitted by the NASD) during the one (1) year period
commencing on the Effective Date. The Unit Purchase Options shall be
exercisable four a period of four (4) years commencing one (1) year from the
Effective Date "Term"). The Unit Purchase Options shall be in the forms
provided by the Underwriter and filed as an Exhibit to the Registration
Statement.
- 17 -
<PAGE>
(b) M/A Agreement.
(i) The Company hereby agrees that if, during
the five (5) year period commencing on the Effective Date, the Underwriter
shall introduce to the Company another party or entity (the "Introduced
Party"), and, as a result of such introduction, a Transaction is consummated
with such Introduced Party, the Company shall pay to the Underwriter a
finder's fee (the "Fee") equal to six percent (6%) of the first five million
dollars ($5,000,000) of the consideration paid or received in such
Transaction; plus five percent (5%) of the consideration in excess of five
million dollars ($5,000,000) and up to six million dollars ($6,000,000); plus
four percent (4%) of the consideration in excess of six million dollars
($6,000,000) and up to seven million dollars ($7,000,000); plus three percent
(3%) of the consideration in excess of seven million dollars ($7,000,000) and
up to eight million dollars ($8,000,000); plus two percent (2%) of the
consideration in excess of eight million dollars ($8,000,000) and up to nine
million dollars ($9,000,000); plus one percent (1%) of the consideration in
excess of nine million dollars ($9,000,000).
(ii) The Fee shall be paid in cash at the closing
of the particular Transaction, regardless of whether the Transaction involves
installment payments or the consideration paid includes securities or a
combination of securities and cash; provided, however, that in the event that
the Transaction is a marketing or license or other agreement pursuant to which
a stream of revenue or cash receipts may be generated or other Transaction
where it is impossible to determine the value of the consideration to be paid
or received or in the event that there are contingent payments, the Fee shall
be paid with respect to each payment at the same time as the payment is made
or received, as the case may be, regardless of when the payment is received as
long as the original agreement pursuant to which the payment is made was
entered into during the five (5) year period commencing on the Effective Date.
No modification of payment or other terms of any agreement shall impair the
Underwriter's right to the Fee. In the event that the Transaction involves a
merger or sale of assets or tender offer or sale of stock where the
consideration is paid to any or all of the Company's stockholders, the
consideration paid to such stockholders shall be included in the consideration
paid or received for purposes of computing the Fee. All references to the
Company in the context of a Transaction shall include Muse Technologies, Inc.,
any of its present or future subsidiaries or any affiliate of the Company,
regardless of whether such party shall pay or receive the consideration paid
in the Transaction.
(iii) In determining the value of the
consideration paid or received, the following provisions shall apply:
(A) Any securities which are regularly
traded on a securities exchange or in the over-the-counter market shall be
valued at the average of the closing prices in the case of securities listed
on the New York or American Stock Exchange or the Nasdaq Stock Market (or the
closing bid price if there are no transactions on any of such days) or the
average of the closing bid prices, as reported by Nasdaq or the National
Quotation Bureau, Inc. or similar recognized reporting agency, in the case of
securities not traded on such exchanges or in such markets on the ten (10)
trading days prior to the earlier of (I) the date of the agreement or (II) in
the event that a press release or other announcement is made by the Company
and/or the Introduced Party concerning the Transaction and the consideration
provided for in the agreement includes the transfer of a fixed number of
securities, the date of such press release or announcement.
- 18 -
<PAGE>
(B) Any debt securities which are not
regularly traded on a securities exchange or on the over-the-counter market
shall be valued at the principal amount thereof if such obligations bear a
stated interest rate or, if no interest rate is stated, at the present value
of the payments due, discounted using an interest rate equal to the prime rate
of Chemical Bank in effect on the second business day prior to the closing
date.
(C) The consideration received in a joint
venture shall be based on the consideration paid to the joint venture by both
the Introduced Party and the Company; plus any additional consideration paid
by the Company to the joint venture partner or by the joint venture partner to
the Company.
(D) In the event that the Transaction
involves the receipt by the Company of property or equipment the consideration
shall be fair value of the property and equipment.
(E) In the event that the fair market
value of any property cannot be determined pursuant to the application of
Paragraph 5(b)(iii) of this Agreement and the Company and the Underwriter
shall not be able to agree on a value, the value shall be determined by an
appraiser jointly selected by the Company and the Underwriter.
(iv) Notwithstanding anything in this Paragraph
5(b) to the contrary, if the Company shall, within one hundred eighty (180)
days immediately following the expiration of five (5) years from the Effective
Date, consummate a Transaction with an Introduced Party which was introduced
by the Underwriter to the Company during such five (5) year period, the
Company shall pay the Underwriter the Fee in the same manner as is otherwise
provided in this Paragraph 5(b).
6. Conditions to the Obligations of the Underwriter. The obligation
of Underwriter to purchase and pay for the Securities shall be subject to the
accuracy in all material respects, as of the date of this Agreement and each
Closing Date (whether the Closing Date with respect to the Firm Units or an
Option Closing Date with respect to the Option Units), as if made on such
Closing Date, of the representations and warranties of the Company contained
in this Agreement and the following additional conditions:
(a) Effectiveness of Registration Statement.
(i) The Registration Statement shall have become
effective not later than 5:30 P.M., Eastern Time, on the date of this
Agreement, or such later time or date as shall have been consented to by you
in writing (the "Effective Date").
(ii) On the Closing Date, no stop order
suspending the effectiveness of the Registration Statement or the
qualification or registration of the Securities under the blue sky laws of any
jurisdiction (whether or not a jurisdiction specified by the Underwriter)
shall have been issued, and no proceeding for that purpose shall have been
initiated or shall be threatened or contemplated by the Commission or the
authorities of any such jurisdiction.
(iii) Any request of the Commission or any such
authorities for additional information to be included in the Registration
Statement or Prospectus or otherwise shall have been complied with to the
reasonable satisfaction of counsel for the Underwriter.
- 19 -
<PAGE>
(b) Representations; Compliance with Agreement. The
representations and warranties of the Company in this Agreement shall be true
and correct on and as of the Closing Date, with the same effect as if made on
the Closing Date, and the Company shall have complied with all the agreements
and satisfied all the obligations required to be performed or satisfied by it
at or prior to the Closing Date.
(c) No Untrue Statements. The Registration Statement and the
Prospectus shall contain all statements required to be stated therein in
accordance with the Securities Act and the Regulation and the Registration
Statement and the Prospectus shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and, since the
Effective Date, there shall not have occurred any event required to be set
forth in an amended or supplemented Prospectus that has not been so set forth
(except any such statement or omission based upon information furnished in
writing by or on behalf of the Underwriter for inclusion in the Registration
Statement).
(d) No Material Change. Subsequent to the respective dates
as of which information is given in the Registration Statement and Prospectus,
and except as set forth or contemplated in the Prospectus, (i) there shall
have been no material adverse changes with respect to the officers, directors,
operations, capitalization, contractual obligations, legal proceedings,
proposed use of proceeds from the sale of the Securities, business, plans or
prospects, net assets or liabilities or obligations, properties, or any other
aspect of the financial condition or results of operations of the Company,
(ii) the Company shall not have entered into any material transaction not in
the ordinary course of business, (iii) the Company shall not have paid or
declared any dividends or other distributions on its capital stock, (iv) the
conduct of the business and operations of the Company shall not have been
materially interfered with by strike, fire, flood, hurricane, accident or
other calamity (whether or not insured), or by any court or governmental
action, order or decree, and the properties of the Company shall not have
sustained any material loss or damage (whether or not insured) as a result of
any such occurrence, and (v) except as set forth in the Prospectus, there are
no actions, suits, proceedings or investigations pending before any
arbitrator, court or governmental agency, authority or body or, to the
knowledge of the Company, threatened, to which the Company is a party or of
which the business or property of the Company is the subject and which, if
adversely decided, could reasonably be expected to have a material adverse
affect on the business, property, condition (financial or otherwise), results
of operations or general affairs of the Company, and there have been no
material adverse development in any such suits, actions, proceedings or
investigations.
(e) NASD. The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the
Securities by the Underwriter. No action shall have been taken by the
Commission or the NASD the effect of which would make it improper, at any time
prior to the Closing Date, for any member firm of the NASD to execute
transactions (as principal or as agent) in the Securities, Common Stock or
Warrants and no proceedings for the purpose of taking such action shall have
been instituted or shall be pending, or, to the best of the Underwriter's or
the Company's knowledge, shall be contemplated by the Commission or the NASD.
The Company represents at the date of this Agreement, and shall represent as
of the Closing Date or Option Closing Date, as the case may be, that it has no
knowledge that any such action is in fact contemplated by the Commission or
the NASD.
- 20 -
<PAGE>
(f) Certificates, Bylaws and Proceedings. The Company's
Certificate of Incorporation and By-Laws, and all proceedings taken in
connection with the authorization, issuance, or sale of the Securities as
herein contemplated, shall be reasonably satisfactory in form and substance to
you.
(g) Officers' Certificate. The Company shall have furnished
to the Underwriter a certificate of the President and of the Chief Financial
Officer of the Company, dated the day of the Closing Date, to the effect that
each signer of such certificate has examined the Registration Statement, the
Prospectus, and this Agreement, and confirming, in form satisfactory to the
Underwriter, that the compliance by the Company of the conditions set forth in
Paragraphs 6(a) through (d) of this Agreement have been satisfied.
(h) Opinion of Company Counsel. The Company shall have
furnished to the Underwriter the opinion of Proskauer Rose LLP, counsel for
the Company, dated the Closing Date, in form and substance reasonably
satisfactory to counsel to the Underwriter and substantially in the form of
Exhibit A attached hereto. In rendering the opinion, such counsel may rely as
to matters of fact, to the extent they deem proper, upon certificates of the
Company's officers and governmental officials.
(i) Accountants' Letter. At the time this Agreement is
executed and as of the Closing Date, Feldman Sherb Ehrlich & Co., P.C.,
independent public accountants for the Company, shall have furnished to you a
letter addressed to the Underwriter and dated the date of this Agreement or
the Closing Date, as applicable, in form and substance previously approved by
the Underwriter and its counsel.
(j) Agreements with Stockholders. The Underwriter shall have
received the agreements, in form and substance satisfactory to the
Underwriter, as contemplated by Paragraphs 3(l), (t) and (w) of this
Agreement.
(k) Change in Capitalization. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any material adverse change or decrease
in the capital stock or long-term debt obligations of the Company or any
changes or decreases in stockholders' equity, net assets or current net assets
of the Company or any material adverse change in the financial position,
revenues, expenses or results of operations of the Company, each as compared
with the amounts shown in the most recent financial statements included in the
Registration Statement, except as disclosed in the Prospectus, that makes it
impractical or inadvisable in the reasonable judgment of the Underwriter to
proceed with the Public Offering or the delivery of the Securities, as the
case may be, as contemplated in the Prospectus.
(l) Other Agreements. The Company shall have executed and
delivered to the Underwriter the Warrant Agreement and the Unit Purchase
Options to purchase one hundred twenty thousand (120,000) Units.
(m) Opinion of Underwriter's Counsel. The Underwriter shall
have received an opinion from Esanu Katsky Korins & Siger, LLP, counsel for
the Underwriter, as to the organization of the Company, the validity of the
Securities, the form of the Registration Statement and the Prospectus, and
such other related matters as you may request, and such counsel shall
- 21 -
<PAGE>
have been furnished by the Company such papers and information as they request
to enable them to pass upon such matters. It is understood that such counsel
will express no opinion with respect to the financial statements and other
financial, accounting, and statistical data included in the Registration
Statement and the Prospectus. In rendering the foregoing opinion, such counsel
shall be entitled to rely upon the opinion delivered to the Underwriter
pursuant to Paragraph 6(h) of this Agreement as to matters of Federal
securities law, and may rely as to matters of fact upon such certificates and
other documents and information as they may reasonably request for purposes of
such opinion.
(n) Other Information. Prior to the Closing Date, the
Company shall have furnished to the Underwriter such further information,
certificates, and documents in connection with the Company's obligations set
forth in this Agreement as you may reasonably request.
If any of the conditions specified in this Paragraph 6 shall
not have been fulfilled when and as required by this Agreement, this Agreement
and all obligations of the Underwriter hereunder may be terminated by you at,
or at any time prior to, the Closing Date. Notice of such termination shall be
given to the Company in writing, or by facsimile transmission or telephone and
confirmed in writing.
7. Indemnification
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless Underwriter and each person who controls any
Underwriter within the meaning of the Securities Act, from and against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, the Exchange Act, or
other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact made by the Company in this
Agreement, (ii) any untrue statement or alleged untrue statement of a material
fact made by the Company contained in the Registration Statement, or any
amendment thereof, or in any Preliminary Prospectus or the Prospectus, or any
amendment thereof or supplement thereto, or in any blue sky application or
other document executed by the Company specifically for that purpose (or based
upon written information furnished by the Company) filed in any state or other
jurisdiction in order to qualify any of the Securities or other Securities
under the securities laws thereof (any such application, document or
information being referred to as a "Blue Sky Application"); or (iii) the
omission or alleged omission to state in any such Registration Statement,
Preliminary Prospectus or Prospectus, or amendment thereof or supplement
thereto, or Blue Sky Application a material fact required to be stated therein
or necessary to make the statements made therein not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses
reasonably incurred by it in connection with investigating or defending
against any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage, or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein or omitted therefrom in reliance upon and in conformity with
written information furnished to the Company by or on behalf of you or such
Underwriter specifically for use in connection with the preparation thereof,
and further provided, however, that the foregoing indemnity with respect to
any untrue statement, alleged untrue statement, omission, or alleged omission
contained in any Preliminary Prospectus shall not inure to the benefit of any
Underwriter
- 22 -
<PAGE>
from whom the person asserting any such loss, claims any of, damage, or
liability purchased any of the securities that are the subject thereof (or to
the benefit of any person who controls such Underwriter), if a copy of the
Prospectus was not delivered to such person with or prior to the written
confirmation of the sale of such security to such person. This indemnity
agreement will be in addition to any liability that the Company may otherwise
have.
(b) Indemnification by Underwriter. Underwriter agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed or signs the Registration Statement, and each person
who controls the Company within the meaning of the Securities Act, from and
against any and all losses, claims, damages or liabilities, joint or several,
to which they or any of them may become subject under the Securities Act, the
Exchange Act, or other Federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, or any amendment thereof, or in any Preliminary
Prospectus or the Prospectus, or any amendment thereof or supplement thereto,
or in a Blue Sky Application, or (ii) the omission or the alleged omission to
state in any such Registration Statement, Preliminary Prospectus or
Prospectus, amendment thereof or supplement thereto, or Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements made therein not misleading, in each case to the extent, but only
to the extent, that the same was made therein or omitted therefrom in reliance
upon and in conformity with written information furnished to the Company by or
on behalf of you or such Underwriter specifically for use in the preparation
thereof, and agrees to reimburse each such indemnified party for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending against any such loss, claim, damage, liability or action. This
indemnity agreement will be in addition to any liability that the Underwriter
may otherwise have.
(c) Claims. Within five (5) days after receipt by an
indemnified party under Paragraph 7(a) or (b) of this Agreement of notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party under such
subsection, notify the indemnifying party in writing of the commencement
thereof; the failure so to notify the indemnifying party shall relieve the
indemnifying party from any liability under this Paragraph 7 as to the
particular item for which indemnification is then being sought, unless such
indemnifying party has otherwise received actual notice of the action at least
thirty (30) days before any answer or response is required by the indemnifying
party in its defense of such action, but will not relieve it from any
liability that it may have to any indemnified party otherwise than under this
Paragraph 7. If any such action is brought against any indemnified party and
it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof; provided, that if the defendants in any such
action include both the indemnified party and the indemnifying party and
either (i) the indemnifying party or parties agree, or (ii) representation of
both the indemnifying party or parties and the indemnified party or parties by
the same counsel is inappropriate under applicable standards of professional
conduct because of actual or potential conflicting interests between them,
then the indemnified party or parties shall have the right to select separate
counsel to assume such legal defense and to otherwise participate in the
defense of such action. The indemnifying party will not be liable to such
indemnified party under this Paragraph 7 for any legal or other expenses
subsequently
- 23 -
<PAGE>
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed counsel in connection
with the assumption of legal defenses in accordance with the proviso to the
immediately preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel approved by the indemnifying party for all indemnified
parties), (ii) the indemnifying party shall not have employed counsel to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall an indemnifying party be liable under
this Paragraph 7 for any settlement, effected without its written consent,
which consent shall not be unreasonably withheld, of any claim or action
against an indemnified party.
(d) Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) an indemnified
party makes a claim for indemnification pursuant to Paragraphs 7(a) or (b) of
this Agreement (subject to the limitations thereof) but is judicially
determined, by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal, that such indemnification may not be enforced in such case
not withstanding that the provisions of this Paragraph 7 provide for
indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified or indemnifying party in
circumstances for which indemnification is provided under Paragraphs 7(a) or
(b) of this Agreement, then, and in each such case, the Company and the
Underwriter shall contribute to the aggregate losses, claims, damages, or
liabilities to which they may be subject (after contribution from all others)
in such proportion so that the Underwriter are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Prospectus bears to the Public Offering Price appearing
thereon, and the Company is responsible for the remaining portion; provided,
however, that if such allocation is not permitted by applicable law, then the
relative fault of the Company and the Underwriter in connection with the
statements or omissions that resulted in such losses, liabilities, claims, and
damages and other relevant equitable considerations shall also be considered.
The relative fault shall be determined by reference to, among other things,
whether in the case of an untrue statement of a material fact or the omission
to state a material fact, such statement or omission relates to information
supplied by the Company or by the Underwriter and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Company and the Underwriter agree that
it would not be just and equitable if the respective obligations of the
Company and the Underwriter to contribute pursuant to this Paragraph 7(d) were
to be determined by pro rata or per capita allocation of the aggregate damages
(even if the Underwriter and their respective controlling persons in the
aggregate were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in the first sentence of this Paragraph 7(d). For purposes of this
Paragraph 7(d), the term "damages" shall include any legal or other expenses
reasonably incurred by the indemnified party in connection with investigating
or defending against or appearing as a third party witness in any action or
claim that is the subject of the contribution provisions of this Paragraph
7(d). Notwithstanding the provisions of this Paragraph 7(d), an Underwriter
and its controlling persons collectively shall not be required to contribute
any amount in excess of the difference between the total price of the
Securities purchased by the Underwriter, directly or indirectly, from the
Company pursuant to this Agreement and the amount of any damages that such
Underwriter and its controlling persons collectively have been required to pay
by reason of such untrue statement or
- 24 -
<PAGE>
omission other than pursuant to this Paragraph 7(d). No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For the purposes of this
Paragraph 7(d), any person who controls an Underwriter within the meaning of
Paragraph 15 of the Securities Act or Paragraph 20(a) of the Exchange Act
shall have the same rights to contributions as the Underwriter and each
director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within Paragraph 15 of the Securities Act or Section 20(a) of the Exchange Act
shall have the same rights to contribution as the Company.
The foregoing contribution agreement shall in no way
affect the contribution liabilities of any person having liability under
Section 11 of the Securities Act other than the Company and the Underwriter
and persons controlling the Company or the Underwriter.
After receipt by any party to this Agreement of
notice of the commencement of any action, suit, or proceeding, such person
will, if a claim for contribution in respect thereof is to be made against
another party (the "contributing party"), notify the contributing party of the
commencement thereof within a reasonable time thereafter, but the failure so
to notify the contributing party will not relieve the contributing party from
any liability that it may have to any party other than for contribution
pursuant to this Paragraph 7(d). Any notice given pursuant to any other
provision of this Paragraph 7 shall be deemed to be like notice pursuant to
this Paragraph 7(d). If any such action, suit or proceeding is brought against
any party, and such person notifies a contributing party of the commencement
thereof, the contributing party will be entitled to participate therein with
the notifying party and any other contributing party similarly notified,
subject to the provisions of Paragraph 7(c) of this Agreement.
(e) Survival. The respective indemnity and contribution
agreements by the Underwriter and the Company contained in this Paragraph 7,
and the covenants, representations and warranties of the Company set forth in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by the Underwriter or on their behalf or by or
on behalf of any person who controls any Underwriter, by the Company or any
controlling person of the Company or any director or any officer of the
Company, (ii) acceptance of the Securities and payment therefor, or (iii) any
termination of this Agreement, and shall survive the delivery of the
Securities, and any successor to the Company or to any Underwriter or any
person who controls any Underwriter or the Company, as the case may be, shall
be entitled to the benefit of such respective indemnity and contribution
agreements.
8. Effectiveness. This Agreement shall become effective
contemporaneously with the effectiveness of the Registration Statement, or at
such date after the effective time of the Registration Statement as you, in
your discretion, shall first release the Securities for sale to the public;
provided, however, that the provisions of Paragraphs 4, 6, and 7 of this
Agreement shall at all times be in full force and effect. For the purposes of
this Paragraph 8, the Securities shall be deemed to have been released for
sale to the public upon release by you after effectiveness of the Registration
Statement of a newspaper advertisement relating to the Securities or upon
release by you thereafter of telegrams advising securities dealers of the
effectiveness of the Registration Statement, whichever shall first occur.
- 25 -
<PAGE>
9. Termination. This Agreement may be terminated, in your absolute
discretion, by notice given to the Company prior to the Closing Date if the
Company shall have failed, refused, or been unable, prior to the Closing Date,
to perform any material agreement required to be performed by it hereunder, or
if any other condition of the Underwriter' obligations hereunder required to
be fulfilled by the Company is not fulfilled. In addition, this Agreement may
be terminated, as set forth above, if, prior to the Closing Date, any of the
following shall have occurred: (a) material governmental restrictions (not in
force and effect on the date of this Agreement) have been imposed on trading
in securities on the New York Stock Exchange or American Stock Exchange or in
the over-the-counter market; (b) a material adverse change, beyond normal
fluctuations, in general financial market or economic conditions from such
conditions on the date of this Agreement; (c) a material interruption in mail
or telecommunications service or other general means of communications within
the United States after the execution and delivery of this Agreement; (d) a
banking moratorium has been declared by Federal or New York or Florida state
authorities; (e) an outbreak of major international hostilities or other
national or international calamity has occurred; (f) the passage by the
Congress of the United States or by any state legislative body of any act or
measure, or the adoption of any orders, rules, or regulations by any
governmental body or executive or any authoritative accounting institute or
board, that you believe will have a Material Adverse Effect on the business,
financial condition, or financial statements of the Company or the
distribution of the Securities or market for the Securities; or (g) any
material adverse change has occurred, since the respective dates of which
information is given in the Registration Statement and Prospectus, in the
condition of the Company, financial or otherwise, whether or not arising in
the ordinary course of business. Any such termination shall be without
liability of any party to any other party, except as provided in Paragraph 7
in this Agreement and except that the Company shall remain obligated to pay
costs and expenses pursuant to Paragraph 5 in this Agreement. If you elect to
prevent this Agreement from becoming effective, or to terminate this
Agreement, as provided in this Paragraph 9, you shall promptly notify the
Company by telecopier or telephone, and confirm by letter, and the Underwriter
shall not be under any liability to the Company.
10. Survival of Representations, Warranties, and Indemnities. The
respective agreements, representations, warranties, and indemnities contained
in this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of you, any Underwriter or the Company, or
any of your or their respective officers or directors or controlling persons,
and will survive delivery of and payment for the Securities and the Unit
Purchase Options.
11. Notices. All notices and other communications hereunder (unless
otherwise expressly provided for in this Agreement) shall be in writing and
shall be deemed given when delivered in person or by overnight courier service
or Express Mail, on the business day (before 5:00 P.M.) transmitted if sent by
facsimile transmission or similar means of communication if receipt if
confirmed or if transmission is confirmed as otherwise provided in this
Paragraph 12, or the fifth (5th) day after mailing if mailed if sent by
registered or certified mail (return receipt requested) to the party to
receive the same at the following addresses (or at such other address for a
party as shall be specified by like notice):
-26-
<PAGE>
If to the Company: Muse Technologies, Inc.
1601 Randolph, SE
Suite 210
Albuquerque, New Mexico 87104
Facsimile: (505) 766-9123
Attention: Curtiz J. Gangi, President
With a copy to: Proskauer Rose, LLP
1585 Broadway
New York, New York 10036
Facsimile: (212) 969-2900
Attention: Neil S. Belloff, Esquire
If to the Underwriter: HD Brous & Co., Inc.
40 Cuttermill Road
Great Neck, New York 11021
Facsimile: (516) 773-1829
Attention: Mr. Howard D. Brous, Chairman
With a copy to: Esanu Katsky Korins & Siger, LLP
605 Third Avenue
New York, New York 10158
Facsimile: (212) 953-6899
Attention: Asher S. Levitsky P.C.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors. The terms
"successor" and "successors and assigns" as used in this Agreement shall not
include any buyer, as such, of any of the Securities from the Underwriter.
13. Entire Understanding. This Agreement contains the entire
understanding between the parties to this Agreement and supersedes any prior
or contemporaneous oral or prior written agreement, understandings or letter
of intent, and may not be modified or amended nor may any right be waived
except by a writing signed by all parties in the case of a modification or
amendment or the party to be charged in the case of a waiver. No course of
conduct or dealing and no trade custom or practice shall be construed to
modify any of the provisions of this Agreement.
14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which taken
together shall constitute one and same agreement.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable
to agreements executed and to be performed wholly within such State.
- 27 -
<PAGE>
Please confirm, by signing and returning to the Company
counterparts of this Underwriting Agreement, that the foregoing correctly sets
forth the understanding between the Company and you, whereupon this Agreement
will constitute a binding agreement among us.
Very truly yours,
MUSE TECHNOLOGIES, INC.
By: ___________________________
Curtiz J. Gangi, President
Confirmed and Accepted as of
the date first above-written:
HD BROUS & CO, INC.
By: _____________________________
Howard D. Brous, Chairman
- 28 -
<PAGE>
Exhibit A
Opinion of Company Counsel
--------------------------
1. The Company (a) has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware,
with full corporate power and authority to own and operate its properties and
to carry on its business as set forth in the Registration Statement and
Prospectus; (b) on the Effective Date has authorized and, to such counsel's
knowledge, outstanding capital stock as set forth in the Prospectus, and (c)
is duly licensed or qualified as a foreign corporation in New Mexico and all
other jurisdictions in which by reason of owning or leasing real property in
such jurisdiction it is required to be so licensed or qualified except where
failure to be so qualified or licensed would have no material adverse effect.
2. All of the outstanding shares of Common Stock are duly and validly
authorized and issued and outstanding, fully paid and non-assessable, conform
to the description set forth in the Prospectus and do not have any, and were
not issued in violation of any, preemptive rights under the Company's
certificate of incorporation or by-laws or any other agreement known to such
counsel.
3. The Company has authorized and reserved for issuance the shares of
Common Stock issuable (a) upon exercise of the outstanding options or warrants
(other than the Warrants) in accordance with the terms of the applicable
options or warrants, (b) upon exercise of the Warrants, including Warrants
issued upon exercise of the Unit Purchase Option and Warrants held by the
Selling Securityholders, pursuant to the terms of the Warrants and the Warrant
Agreement, and (c) upon exercise of the Unit Purchase Option, and when issued
upon such exercise, such shares of Common Stock will be duly and validly
authorized and issued, fully paid and nonassessable and not subject to any
preemptive rights or rights of first refusal pursuant to the Company's
certificate of incorporation or bylaws or other agreement known to such
counsel.
4. The shares of Common Stock included in the Units offered pursuant
to the Prospectus (a) are duly and validly authorized and issued, fully paid
and non-assessable, (b) have not been issued in violation of the pre-emptive
rights or rights of first refusal pursuant to the Company's certificate of
incorporation or any agreement known to such counsel and (c) are not subject
to any restrictions on voting or transfer other than as may be imposed by the
Securities Act.
5. The Warrants and the Unit Purchase Options conform to the
descriptions thereof that are contained in the Prospectus (excluding financial
statements) and, when issued as provided in this Agreement and/or the Unit
Purchase Option, will constitute the valid, binding and enforceable
obligations of the Company, subject to bankruptcy, insolvency and other laws
of general applications affecting the enforceability of creditors' rights and
subject to the discretionary nature of any remedies in the nature of equitable
relief and except that no opinion is given with respect to the indemnification
and contribution provisions of the Underwriter's Warrants.
6. The shares of Common Stock and Warrant included in the Units
offered pursuant to the Prospectus, when issued pursuant to this Agreement
upon payment of the consideration provided for in this Agreement, will, to the
best of such counsel's knowledge, be free of all liens, encumbrances, claims,
security interests, restrictions (other than those imposed by Federal or
A-1
<PAGE>
state securities laws), stockholders' agreements and voting trusts resulting
from agreements known to such counsel to which the Company is a party.
7. The shares of Common Stock issuable upon exercise of the Unit
Purchase Option and upon exercise of the Warrants issuable upon exercise of
the Unit Purchase Option have been duly and validly authorized for issuance,
and when issued pursuant to the terms of the Unit Purchase Option and/or the
Warrant Agreement, as the case may be, will be validly issued, fully paid and
non-assessable; the Warrants issuable upon exercise as provided in the Unit
Purchase Option, will constitute the valid and binding obligations of the
Company, subject to bankruptcy, insolvency and other laws of general
applications affecting the enforceability of creditors' rights and subject to
the discretionary nature of any remedies in the nature of equitable relief in
any legal or equitable action.
8. Except as set forth in or contemplated by the Prospectus, to the
best of such counsel's knowledge, as of the date of this Agreement, there were
no outstanding options, warrants or other rights providing for the issuance of
any class of capital stock of the Company, or any security convertible into,
or exchangeable for, any shares of any class of capital stock of the Company.
9. To the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering of the Units as contemplated by this
Agreement gives rise to any registration rights or other rights, other than
those which have been waived or satisfied, relating to the registration under
the Act of any shares of Common Stock.
10. The certificate evidencing the shares of Common Stock and
Warrants are in proper legal form.
11. To the best of such counsel's knowledge, no consents, approvals,
authorizations or orders of agencies, officers or other regulatory authorities
are necessary for the valid authorization, issue or sale of the Securities
pursuant to this Agreement, except such as may be required under the Act or
state securities or blue sky laws or pursuant to the NASD's rules, regulations
and policies.
12. Based solely upon a review of a lien search delivered at the
Closing (the "Lien Search") and an officer's certificate, such counsel does
not know of any liens on any of the Company's assets not disclosed in the Lien
Search or the Prospectus.
13. This Agreement, the Warrant Agreement and the Unit Purchase
Options have been duly authorized and executed by the Company and constitute
the valid and binding agreements of the Company, enforceable in accordance
with their respective terms, subject to bankruptcy, insolvency and other laws
of general applications affecting the enforceability of creditors' rights and
subject to the discretionary nature of any remedies in the nature of equitable
relief and except that no opinion is given with respect to the provisions of
Paragraph 7 of this Agreement.
14. The Company has full corporate power and authority to authorize,
issue and sell the Securities on the terms and conditions set forth in this
Agreement, the Warrant Agreement, the Unit Purchase Option, as the case may
be, and in the Registration Statement and in the Prospectus, and the execution
and delivery of this Agreement, the consummation of the
A-2
<PAGE>
transactions contemplated by this Agreement, the Warrant Agreement and the
Unit Purchase Option and compliance by the Company with the terms of this
Agreement, the Warrant Agreement and the Unit Purchase Agreement will not
conflict with, or constitute a default under, the certificate of incorporation
or by laws of the Company or any indenture, mortgage, deed or trust, note or
any other agreement or instrument known to such counsel to which the Company
is a party or by which they or their businesses or their properties are bound,
or, to such counsel's knowledge, any law, order, rule or regulation, writ,
injunction or decree of any government, governmental instrumentality, or court
having jurisdiction over the Company or its business or properties.
15. Such counsel knows of no actions, suits or proceedings at law or
in equity of a material nature pending, or to such counsel's knowledge,
threatened, against the Company before or by any state commission, regulatory
body, or administrative agency or other governmental body, wherein an
unfavorable ruling, decision or finding would materially adversely affect the
business or financial condition of the Company or which question either (a)
the validity of the Securities, the Underwriting Agreement, the Warrant
Agreement or the Unit Purchase Option, or (b) any action taken or to be taken
by the Company pursuant to the Underwriting Agreement, the Warrant Agreement
or the Unit Purchase Option, which are not disclosed in or contemplated by the
Prospectus.
16. The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or contemplated under the Act.
Furthermore, the Registration Statement and the Prospectus (except as
to the financial statements and other financial information contained therein
and thereto, as to which no opinion is expressed), comply as to form in all
material respects with the requirements of the Act and the rules and
regulations (the "Rules") of the Commission under the Act. In passing upon the
form of such documents, such counsel has assumed the correctness and
completeness of the statements made or included therein by the Company and
take no responsibility for the accuracy, completeness or fairness of the
statements contained therein except insofar as such statements relate to the
description of the Securities or relate to such counsel. However, in the
course of the preparation by the Company of the Registration Statement and the
Prospectus, such counsel had conferences with officers and directors of the
Company with a view to imparting to them a clear understanding of the
requirements of the Act and the Rules with reference to the preparation of
registration statements and prospectuses, and such counsel's examination of
the Registration Statement and the Prospectus and their discussions in the
above-mentioned conferences did not disclose to such counsel any information
which gave such counsel reason to believe that the Registration Statement, as
of the effective date thereof (except as to the financial statements and other
financial information contained therein, as to which no opinion is expressed),
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; or that the Prospectus (except as to the
financial statements and other financial information contained therein, as to
which no opinion is expressed) contained any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Such counsel have reviewed all contracts filed as exhibits to the
Registration Statement, and such counsel does not know of any agreements to
which the
A-3
<PAGE>
Company is a party required to be filed as exhibits to the Registration
Statement which have not been so filed.
A-4
<PAGE>
UPO-
Option to Purchase
Units
MUSE TECHNOLOGIES, INC.
Unit Purchase Option
Dated: , 1998
THIS CERTIFIES THAT and its registered assigns (herein sometimes
called the "Holder") is entitled to purchase from Muse Technologies, Inc., a
Delaware corporation (hereinafter called the "Company"), at the price and
during the period as hereinafter specified, up to Units ("Units"), each
Unit consisting of one share of the Company's Common Stock, par value $.015 per
share ("Common Stock"), and one Class A Redeemable Common Stock Purchase
Warrant of the Company (a "Warrant" and collectively, the "Warrants") to
purchase one-half (1/2) share of Common Stock.
1. This option (this "Option"), together with options of like tenor,
constituting in the aggregate options (the "Options") to purchase an aggregate
of one hundred twenty thousand (120,000) Units, was originally issued pursuant
to an underwriting agreement (the "Underwriting Agreement") between the
Company and HD Brous & Co., Inc. ("Brous" or the "Underwriter") in connection
with a public offering of one million two hundred thousand (1,200,000) Units,
at an aggregate price of $100 for the Options. Except as specifically
otherwise provided in this Option, the Common Stock and the Warrants issued
upon exercise of the Option shall bear the same terms and conditions as
described under the captions "Description of Securities" and "Underwriting" in
the Company's Registration Statement on Form SB-2, File No. 333- (the
"Registration Statement") which was declared effective by the Securities and
Exchange Commission (the "Commission") on , 1998 (the "Effective Date").
Pursuant to the Underwriting Agreement, Options to purchase one hundred twenty
thousand (120,000) Units are being issued to the Underwriter and/or selected
dealers. The Holder shall have registration rights under the Securities Act of
1933, as amended (the "Securities Act"), for this Option, the Units issuable
upon exercise of this Option, the Common Stock and the Warrants included in
the Units issuable upon exercise of this Option and the shares of Common Stock
issuable upon exercise of the Warrants, as more fully described in Paragraph 7
of this Option. The Warrants issuable upon exercise of this Option shall be
issued pursuant to the warrant agreement (the "Warrant Agreement") dated as of
, 1998, between the Company and American Stock Transfer & Trust Company,
as warrant agent.
<PAGE>
2. During the four-year period commencing one year from the Effective
Date until 5:30 P.M., New York City time, on , 2003, inclusive (the
"Term"), the Holder shall have the option to purchase the Units pursuant to
this Option at a price of nine and 60/100 dollars ($9.60) per Unit (the
"Initial Exercise Price"), representing 120% of the initial public offering
price of the Units offered pursuant to the Registration Statement.
3. This Option may be exercised at any time during the Term, in whole
or in part, by the surrender of this Option (with the purchase form at the end
of this Option properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company) accompanied by payment to the Company of the Option
Exercise Price, as hereinafter defined, for the number of Units specified in
the above-mentioned purchase form together with applicable stock transfer
taxes, if any, and delivery to the Company of a duly executed agreement (an
"Assumption Agreement"), which may be incorporated in the purchase form,
signed by the person(s) designated in the purchase form as the person in whose
name the underlying securities are to be issued (the "Purchaser") to the
effect that such person(s) agree(s) to be bound by the provisions of
Paragraphs 8(b), (c) and (d) of this Option. This Option shall be deemed to
have been exercised, in whole or in part to the extent specified in said
purchase form, immediately prior to the close of business on the date this
Option is surrendered and payment is made in accordance with the foregoing
provisions of this Paragraph 3, and the person or persons in whose name or
names the certificates for shares of Common Stock and Warrants shall be
issuable upon such exercise shall become the holder or holders of record of
such Common Stock and Warrants at that time and date. The Common Stock and
Warrants and the certificates for the Common Stock and Warrants so purchased
shall be delivered to the Holder or other Purchaser within a reasonable time,
not exceeding ten (10) days, after this Option shall have been so exercised;
provided, that the Company shall not be required to deliver certificates for
the securities unless the Purchaser shall have delivered the Assumption
Agreement to the Company. If the Option is exercised subsequent to expiration
or redemption of the Warrants (including any extensions thereof), the Holder
of the Option shall exercise the Warrants contemporaneously with the exercise
of the Option.
4. Neither this Option nor the Common Stock or Warrants comprising
the Units issuable upon exercise of this Option nor the Common Stock issuable
upon exercise of such
- 2 -
<PAGE>
Warrants shall be transferred, sold, assigned, or hypothecated during the
during the one-year period commencing on the Effective Date, except that such
securities may be transferred during such period to successors of the Holder,
and may be assigned in whole or in part to any person who is an officer of the
Underwriter, a member of the selling group or any officer or partner of a
member of the selling group. Any person who is a permitted transferee may
transfer the Option by will or trust or pursuant to the laws of descent and
distribution. Commencing one year from the Effective Date, this Option and the
securities issuable upon exercise of this Option may be transferred without
restriction as long as such transfer is in compliance with applicable Federal
and state securities laws. Any such assignment during such period shall be
effected by the Holder executing the form of assignment at the end of this
Option and surrendering this Option for cancellation at the office of the
Company or other office or agency as provided in Paragraph 3 of this Agreement
accompanied by a certificate (signed by an officer of the Holder if the Holder
is a corporation), stating that each transferee is a permitted transferee
under this Paragraph 4; whereupon the Company shall issue, in the name or
names specified by the Holder (including the Holder) a new Option or Options
of like tenor and representing in the aggregate rights to purchase the same
number of Units as are purchasable hereunder.
5. The Company covenants and agrees that all shares of Common Stock
which are sold as part of the Units purchased pursuant to this Option, and all
shares of Common Stock which may be issued upon exercise of the Warrants have
been, and will be, duly authorized and, will, upon issuance, be duly and
validly issued, fully paid and nonassessable and no personal liability will
attach to the holder thereof. The Company covenants and agrees that the
Warrants which are issued as part of the Units purchased pursuant to this
Option have been duly authorized and, when issued and delivered, will have
been duly executed, issued and delivered and will constitute the valid and
legally binding obligations of the Company enforceable in accordance with
their terms. The Company further covenants and agrees that during the period
within which this Option may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of its Common Stock to
provide for the exercise of this Option and that it will have authorized and
reserved a sufficient number of shares of Common Stock for issuance upon
exercise of the Warrants.
6. This Option shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
- 3 -
<PAGE>
7. (a) The Company shall advise the Holder, whether the Holder holds
this Option or has exercised this Option and holds Units or any of the
underlying securities, as hereinafter defined, by written notice (certified or
registered mail) at least thirty (30) days prior to the filing of any
post-effective amendment to the Registration Statement or of any new
registration statement or post-effective amendment thereto under the
Securities Act covering any securities of the Company (other than a
registration statement on Form S-8, S-4 or subsequent similar forms), and will
during the term of the Option and for a period of two years thereafter, upon
the request of the Holder, at the Company's cost and expense, include in any
such post-effective amendment (if permitted by law) or registration statement,
such information as may be required to permit a public offering of all or any
of the Units underlying this Option, the Common Stock or Warrants issued as
part of the Units, or the Common Stock issuable upon the exercise of the
Warrants (collectively "underlying securities"). In connection with any such
registration statement, the Company shall supply prospectuses, use its best
efforts to qualify any of the described securities for sale in such states as
such Holder reasonably designates and furnish indemnification in the manner
provided in Paragraph 8 of this Option. The Holder(s) participating in any
such registration shall furnish information and indemnification as set forth
in said Paragraph 8.
(b) In connection with any underwritten public offering
relating solely to an offering of the Company's securities by the Company, the
Holder will agree to defer any sale of such securities for up to sixty (60)
days from the effective date of the applicable registration statement, unless
the applicable registration statement is filed pursuant to Paragraph 7(c) of
this Option, provided that the underwriter or managing underwriter has
requested such deferral on the grounds that the offering by the Company would
be materially adversely affected by the earlier sale of such securities and
the Company agrees to keep the registration statement current for nine (9)
months after the effective date of the registration statement or such longer
period as such registration statement is otherwise being kept effective. This
Paragraph 7(b) shall not be applicable with respect to any registration
statement filed pursuant to Paragraph 7(c) of this Option.
(c) If any majority holder (as defined below) shall give
notice to the Company at any time to the effect that such holder desires to
register under the Securities Act the Units or any of the underlying
securities under such circumstances that a public distribution (within the
meaning of the Securities Act) of any such securities will be involved then
the Company will
- 4 -
<PAGE>
promptly, but no later than thirty (30) business days after date such notice
is given (the "Notice Date"), time being of the essence, file a post-effective
amendment to the current Registration Statement or a new registration
statement pursuant to the Securities Act, to the end that the Units and/or any
of the underlying securities, as the Holder shall determine, may be publicly
sold under the Securities Act as promptly as practicable thereafter and the
Company will use its best efforts to cause such registration to become
effective; provided, that such holder shall furnish the Company with
appropriate written information as to the Holder and the proposed plan of
distribution and indemnification as set forth in Paragraph 8. The majority
holder may, at its option, request the filing of a post-effective amendment to
the Registration Statement or a new registration statement under the
Securities Act on two occasions during the term of the Option. In the event
that the registration statement or post-effective amendment shall not have
been declared effective by the Commission within one hundred fifty (150) days
after the Notice Date (such period being referred to as the "Filing Period"),
other than as a result of action by the majority shareholder to delay the
effective date, then the Initial Exercise Price of the Units shall be reduced
by forty eight cents ($.48) per Unit at the end of each twenty-eight (28) day
period after the expiration of the Filing Period, in which such registration
statement or post-effective amendment to the Registration Statement, has not
been declared effective by the Commission; provided that such exercise price
shall not be less than nine and 60/100 dollars ($9.60) per Unit. The Initial
Exercise Price as so adjusted is herein called the "Adjusted Initial Exercise
Price." As used in this Option, the term "Option Exercise Price" shall refer
to the Initial Exercise Price or the Adjusted Initial Exercise Price, as the
case may be. Within ten (10) business days after receiving any such notice
pursuant to this Paragraph 7(c), the Company shall give notice to the other
Holders of the Options, advising that the Company is proceeding with such
post-effective amendment or registration statement and offering to include
therein the Units and/or the underlying securities of the other Holders,
provided that they shall furnish the Company with such appropriate information
(relating to the intentions of such holders) in connection therewith as the
Company shall request in writing. The costs and expense of the first such
post-effective amendment or new registration statement shall be borne by the
Company, except that each Holder shall bear the fees of his own counsel and/or
accountants and any underwriting discounts or commissions applicable to any of
the securities sold by him. The costs and expenses of the second such
registration statement shall be borne by the Holders. The Company will
maintain
- 5 -
<PAGE>
and keep such registration statement current under the Securities Act for a
period of at least nine (9) months from the effective date of such
registration statement. The Company shall supply prospectuses, use its best
efforts to qualify any of the described securities for sale in such states as
such holder reasonably designates and furnish indemnification in the manner
provided in Paragraph 8 of this Agreement.
(d) If, on the date of receipt by the Company of notice from
any majority holder requesting registration of Units and/or any of the
underlying securities pursuant to Paragraph 7(c) of this Option, the Company
has previously notified the Holder pursuant to Paragraph 7(a) of this Option
that the Company intends to file a post-effective amendment to the
Registration Statement or a new registration statement under the Securities
Act covering any securities of the Company and offering to include the Units
and/or the underlying securities of the Holder in such Registration Statement
or provides notice to the Holder pursuant to Paragraph 7(a) of this Option
within seven (7) days after receipt of such notice from any majority holder,
the Holder agrees that the demand registration request shall be withdrawn and
that if he so elects, he may participate in the Registration Statement filed
by the Company pursuant to Paragraph 7(a) of this Option; provided that (x)
the Registration Statement or post-effective amendment to the Registration
Statement covering the Holder's Units and/or underlying securities is filed
within sixty (60) days and declared effective within one hundred fifty (150)
days after the earlier of the date of such notice to the Company from the
majority holder pursuant to Paragraph 7(c) or the date of such notice to the
Holder from the Company pursuant to Paragraph 7(a); and (y) the majority
holder will not be deemed to have exercised any demand registration right
pursuant to Paragraph 7(c) of this Option.
(e) The term "majority holder" as used in this Paragraph 7
shall mean the holder of at least a majority of the Common Stock (including
the Common Stock issued or issuable upon exercise of the Warrants) for which
the Options (considered in the aggregate) are exercisable and shall include
any owner or combination of owners of such securities, which ownership shall
be calculated by determining the number of shares of Common Stock held by such
owner or owners resulting from the exercise of any Option after giving effect
to any stock dividend, split, reverse split or other recapitalization, the
number of shares of Common Stock issuable upon exercise of any unexercised
Option, the number of shares of Common Stock issuable upon exercise of any
- 6 -
<PAGE>
then outstanding Warrants issued upon exercise of any Option, and the number
of shares of Common Stock issuable upon exercise of any Warrants issuable upon
exercise of any Option.
(f) In connection with any registration described in
Paragraph 7(a) of this Option, the Holder may request inclusion of the Option
in such registration statement; provided, however, that the Company shall not
be required to maintain any public market in the Options.
8. (a) Whenever, pursuant to Paragraph 7 of this Option, a
registration statement relating to this Option or any underlying securities is
filed under the Securities Act or is amended or supplemented, the Company will
indemnify and hold harmless each holder of the securities covered by such
registration statement, amendment or supplement (such holder being hereinafter
called the "Distributing Holder"), and each person, if any, who controls
(within the meaning of the Securities Act) the Distributing Holder, and each
underwriter (within the meaning of the Securities Act) of such securities and
each person, if any, who controls (within the meaning of the Securities Act)
any such underwriter, against any losses, claims, damages or liabilities,
joint or several, to which the Distributing Holder, any such controlling
person or any such underwriter may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or action
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any such
registration statement or any preliminary prospectus or final prospectus
constituting a part thereof or any amendment or supplement thereto, or arise
out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse the Distributing Holder and each such
controlling person and underwriter for any legal or other expenses reasonably
incurred by the Distributing Holder or such controlling person or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement
in reliance upon and in conformity with written information furnished by such
Distributing Holder or for any other Distributing Holder, expressly for use in
the preparation thereof.
(b) The Distributing Holder will indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed said
registration statement and such
- 7 -
<PAGE>
amendments and supplements thereto, each person, if any who controls the
Company (within the meaning of the Securities Act) and each underwriter
participating in such offering (within the meaning of the Securities Act) and
each person, if any, who controls (within the meaning of the Securities Act)
any such underwriter, against any losses, claims, damages or liabilities to
which the Company or any such director, officer, controlling person or
underwriter may become subject, under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities arise out of or are based upon
any untrue or alleged untrue statement of any material fact contained in said
registration statement, said preliminary prospectus, said final prospectus, or
said amendment or supplement, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder expressly for use in the
preparation thereof; and will reimburse the Company or any such director,
officer or controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party under
this Paragraph 8 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party, give the indemnifying party notice of the commencement
thereof.
(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to
the extent that it may wish, join with any other indemnifying party similarly
notified to assume the defense thereof, with counsel reasonably satisfactory
to such indemnified party, and, after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Paragraph 8 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided, that if the defendants in any such action
include both the indemnified party and the
- 8 -
<PAGE>
indemnifying party and either (i) the indemnifying party or parties agree, or
(ii) representation of both the indemnifying party or parties and the
indemnified party or parties by the same counsel is inappropriate under
applicable standards of professional conduct because of actual or potential
conflicting interests between them, then the indemnified party or parties
shall have the right to select separate counsel to assume such legal defense
and to otherwise participate in the defense of such action. The indemnifying
party will not be liable to such indemnified party under this Paragraph 8 for
any legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof unless (i) the indemnified party shall
have employed counsel in connection with the assumption of legal defenses in
accordance with the proviso to the immediately preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel approved by the indemnifying party
for all indemnified parties), (ii) the indemnifying party shall not have
employed counsel to represent the indemnified party within a reasonable time
after notice of commencement of the action, or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall an indemnifying party be
liable under this Paragraph 8 for any settlement, effected without its written
consent, which consent shall not be unreasonably withheld, of any claim or
action against an indemnified party.
9. The number and kind of securities purchasable upon the exercise of
the Option shall be subject to adjustment from time to time upon the happening
of certain events as hereinafter provided, except that, unless the Company
elects to issue additional Warrants pursuant to Paragraph 9(i) of the Warrant
Agreement, the provisions of this Paragraph 9 shall not apply to the Warrants
issuable upon exercise of this Option. The number and kind of securities
purchasable upon exercise of the Option shall be subject to adjustment (with
no change in the Option Exercise Price) as follows:
(a) In case the Company shall pay a dividend or make a
distribution or a split with respect to its shares of Common Stock in shares
of Common Stock, subdivide or reclassify its outstanding Common Stock into a
greater number of shares, or combine or reclassify its outstanding Common
Stock into a smaller number of shares or otherwise effect a reverse split, the
number of shares of Common Stock issuable upon exercise of this Option shall,
as of the time of the record date for such dividend or distribution or of the
effective date of such subdivision, combination or reclassification, be
proportionately adjusted so that the Holder of any Option
- 9 -
<PAGE>
exercised after such date shall be entitled to receive the aggregate number
and kind of shares which, if such Option had been exercised immediately prior
to such time, he would have owned upon such exercise and such shares as he
would have been entitled to receive upon such dividend, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed in this Paragraph 9(a) shall occur.
(b) No adjustment in the Option Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least five cents ($.05) in such price; provided, however, that any adjustments
which by reason of this Paragraph 9(b) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Paragraph 9 shall be made to the nearest cent or to
the nearest one-hundredth of a share of Common Stock as the case may be.
Anything in this Paragraph 9 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in the
Option Exercise Price, in addition to those required by this Paragraph 9, as
it in its discretion shall determine to be advisable in order that any
dividend or distribution in shares of Common Stock, subdivision,
reclassification or combination of Common Stock, issuance of warrants to
purchase Common Stock or distribution of evidences of indebtedness or other
assets (excluding cash dividends) referred to hereinabove in this Paragraph 9
hereafter made by the Company to the holders of its Common Stock shall not
result in any tax to the holders of its Common Stock or securities convertible
into Common Stock.
(c) Whenever the Option Exercise Price is adjusted, as
herein provided, the Company shall promptly cause a notice setting forth the
adjusted Option Exercise Price and adjusted number of shares of Common Stock
issuable upon exercise of the Option as to each Unit to be mailed to the
Holders at their last address appearing in the Option register maintained by
the Company, and shall cause a certified copy thereof to be mailed to its
transfer agent. The Company may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants employed by the Company) to make any computation
required by this Paragraph 9, and a certificate signed by such firm shall be
evidence of the correctness of such adjustment.
(d) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Option, the Holder of any
Option thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other
- 10 -
<PAGE>
shares so receivable upon exercise of any Option shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
this Paragraph 9.
(e) Irrespective of any adjustments in the Option Exercise
Price or the number or kind of shares purchasable upon exercise of Options,
Options theretofore or thereafter issued may continue to express the same
price and number and kind of shares as are stated in the similar Options
initially issuable pursuant to this Agreement.
IN WITNESS WHEREOF, the Company has caused this Option to be signed
by its duly authorized officers this day of , 1998.
MUSE TECHNOLOGIES, INC.
Attest:
By:
---------------------------
Curtiz J. Gangi
President
- ----------------------
Brian Clark, Secretary
- 11 -
<PAGE>
PURCHASE FORM
(To be signed only upon exercise of Option)
The undersigned, the holder of the foregoing Option, hereby
irrevocably elects to exercise the purchase rights represented by such Option
for, and to purchase thereunder, Units of Muse Technologies, Inc., each Unit
consisting of one share of Common Stock and one Class A Redeemable Common
Stock Purchase Warrant (the "Warrants") to purchase one-half (1/2) share of
Common Stock and herewith makes payment of $ thereof, agrees to be bound by
the provisions of Paragraphs 8(b), (c) and (d) of the Option, and requests
that the certificates for shares of Common Stock and Warrants be issued in the
name(s) of, and delivered to ________________________________ whose address(es)
is (are) ______________________________________________________________________.
Dated: , 19 .
___________________________
By:________________________
Address: ______________________________
______________________________
- 12 -
<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and
transfers unto the right to purchase Units represented by the foregoing Option
to the extent of Units, and appoints
attorney to transfer such rights on the books of MUSE TECHNOLOGIES, INC. with
full power of substitution in the premises.
Dated: , 19 .
___________________________
By:________________________
Signature Medallion Guaranteed
___________________________
- 13 -
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
MUSE TECHNOLOGIES INC.
(Pursuant to Sections 101 and 102 of the
General Corporation Law of the State of Delaware)
The undersigned, in order to form a corporation pursuant to Sections 101
and 102 of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the corporation (the "Corporation") is "Muse
Technologies Inc."
SECOND: The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent,
19904. The name of the Corporation's registered agent at such address is The
Prentice-Hall Corporation System, Inc."
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the Corporation
shall have the authority to issue is 100,000 shares of common stock, par value
$0.01 per share.
FIFTH: The name and mailing address of the sole incorporator are as
follows:
NAME ADDRESS
---- -------
Julie C. Bachelor Rosenman & Colin LLP
575 Madison Avenue
New York, NY 10022
SIXTH: The board of directors of the Corporation shall have the power to
adopt, amend and repeal the by-laws of the Corporation.
SEVENTH: Election of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
<PAGE>
EIGHTH: The Corporation shall, to the fullest extent permitted by the
provisions of Section 145 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented, indemnify any and all
persons whom it shall have power to indemnify under said section from and
against any and all of the expenses, liabilities, or other matters referred to
in or covered by said section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
entitled under any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such a
person.
NINTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that nothing in this Article NINTH shall
eliminate or limit the liability of any director (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. Neither the amendment nor repeal of this
Article NINTH, nor the adoption of any provision of the Certificate of
Incorporation inconsistent with this Article NINTH, shall eliminate or reduce
the effect of this Article NINTH in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article NINTH, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
IN WITNESS WHEREOF, I have hereunto signed my name and affirm, under the
penalties of perjury, that this Certificate is my act and deed and that the
facts stated herein are true this 24th day of October, 1995.
Julie C. Bachelor,
Sole Incorporator
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
MUSE TECHNOLOGIES INC.
The undersigned officer of Muse Technologies Inc., a Delaware corporation
(the "Corporation"), in order to amend the Certificate of Incorporation of the
Corporation, pursuant to the provisions of Section 242 of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
1. Article FOURTH of the Certificate of Incorporation is hereby amended and
restated to read as follows:
"FOURTH: The total number of shares of capital stock which the
Corporation shall have the authority to issue is 50,000,000 shares of
common stock, par value $0.01 per share.
Simultaneously with the effective date (the "Effective Date") of the
filing of this amendment to the Corporation's Certificate of Incorporation,
each share of common stock, par value $0.01 per share, of the Corporation
issued and outstanding or held as treasury shares immediately prior to the
Effective Date (the "Old Common Stock") shall automatically and without any
action on the part of the holder thereof be converted into one thousand
(1,000) shares of common stock, par value $0.01 per share, which the
Corporation shall be authorized to issue immediately subsequent to the
Effective Date (the "New Common Stock"). Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of Old Common Stock (the "Old Certificates") shall, from
and after the Effective Date, be entitled to receive, upon surrender of
such Old Certificates to the Corporation's transfer agent for cancellation,
a certificate or certificates representing the shares of New Common Stock
into which the shares of Old Common Stock formerly represented by such Old
Certificates so surrendered are converted pursuant to the terms hereof.
<PAGE>
2. The foregoing amendment to the Certificate of Incorporation of the
Corporation has been duly adopted in accordance with the provisions of Sections
228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, I, Thomas E. Murphy, President of the Corporation, have
subscribed this document and do hereby affirm, under the penalties of perjury,
that the statements contained herein have been examined by me and are true and
correct as of the 14th day of December, 1995.
MUSE TECHNOLOGIES INC.
By ____________________
Thomas E. Murphy
President and Chief
Executive Officer
2
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 05:30 PM 03/05/1998
981086773 - 2548037
SECOND CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF MUSE TECHNOLOGIES INC.
The undersigned officer of Muse Technologies Inc., a Delaware
corporation (the "Corporation"), in order to amend the Certificate of
Incorporation of the Corporation, pursuant to the provisions of Section 242 of
the General Corporation Law of the State of Delaware, does hereby certify as
follows:
1. Article FOURTH of the Certificate of
Incorporation is hereby amended and restated to read as
follows:
"FOURTH: The total number of shares of capital
stock which the Corporation shall have the authority to
issue is 50,000,000 shares of common stock, par value
$0.015 per share.
Simultaneously with the effective date (the
"Effective Date") of the filing of this amendment to
the Corporation's Certificate of Incorporation, each
3.04 shares of common stock, par value $0.01 per share,
of the Corporation issued and outstanding or held as
treasury shares immediately prior to the Effective Date
(the "Old Common Stock") shall automatically and
without any action on the part of the holder thereof be
converted into one (1) share of common stock, par value
$0.015 per share, and any resulting fractional share
interests of a holder shall be converted into one full
share, which the Corporation shall be authorized to
issue immediately subsequent to the Effective Date (the
"New Common Stock"). Each holder of a certificate or
certificates which immediately prior to the Effective
Date represented outstanding shares of Old Common Stock
(the "Old Certificates") shall, from and after the
Effective Date, be entitled to receive, upon surrender
of such Old Certificates to the Corporation's transfer
agent for cancellation, a certificate or certificates
representing the shares of New
<PAGE>
Common Stock into which the shares of Old Common stock
formerly represented by such Old Certificates so
surrendered are converted pursuant to the terms
hereof."
2. A TENTH Article of the Certificate of
Incorporation is hereby added to read as follows:
"TENTH: The board of directors of the Corporation
shall have the authority to confer the power to appoint
one member to the board of directors of the Corporation
upon the holders of any bonds, debentures or other
obligations issued or to be issued by the Corporation
pursuant to Section 221 of the General Corporation Law
of the State of Delaware."
3. The foregoing amendment to the Certificate of
Incorporation of the Corporation has been duly adopted
in accordance with the provisions of Sections 228 and
242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, I, Creve Maples, President of the Corporation,
have subscribed this document and do hereby affirm, under the penalties of
perjury, that the statements contained herein have been examined by me and are
true and correct as of the 18th day of February, 1998.
MUSE TECHNOLOGIES INC.
BY /s/ Creve Maples
----------------------------
CREVE MAPLES
President and Chief Executive
Officer
[SEAL OF SECRETARY OF STATE, DELAWARE]
Attest:
By: /s/ Ron Weeden
---------------------------
Ron Weeden
Acting Secretary
<PAGE>
Exhibit 3.2
(Adopted as of October 24, 1995)
BY-LAWS
of
MUSE TECHNOLOGIES INC.
ARTICLE I
Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held at such place within or without the State of Delaware,
at such time and on such date, as may from time to time be designated by the
Board of Directors, for the election of directors and for the transaction of any
other proper business.
Section 2. Special Meetings. Special meetings of the stockholders of the
Corporation may be called at any time and from time to time by the President or
by a majority of the directors then in office, and shall be called by the
Secretary upon the written request of stockholders holding of record at least a
majority in number of the issued and outstanding shares of the Corporation
entitled to vote at such meeting. Special meetings shall be held at such place
within or without the State of Delaware, at such time and on such date as shall
be specified in the call thereof.
<PAGE>
Section 3. Notice of Meetings. Written notice of each meeting of the
stockholders, stating the place, date and hour thereof and, in the case of a
special meeting, the purpose or purposes for which it is called, shall be given,
not less than ten nor more than sixty days before the date of such meeting (or
at such other time as may be required by statute), to each stockholder entitled
to vote at such meeting. If mailed, such notice is given when deposited in the
United States mail, postage prepaid, directed to each stockholder at his or her
address as it appears on the records of the Corporation.
Section 4. Waiver of Notice. Whenever notice is required to be given of any
annual or special meeting of the stockholders, a written waiver thereof, signed
by the person entitled to notice, whether before or after the time stated in
such notice, shall be deemed equivalent to notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice. Attendance of a
person at a meeting of the stockholders shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
Section 5. Adjournment. When any meeting of the stockholders is adjourned
to another time or place, notice need
2
<PAGE>
not be given of the adjourned meeting if the time and place to which the meeting
is adjourned are announced at the meeting at which the adjournment is taken. At
the adjourned meeting any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than 30 days,
or if after such adjournment the Board of Directors shall fix a new record date
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at such meeting.
Section 6. Quorum. At any meeting of the stockholders the presence, in
person or by proxy, of the holders of a majority of the issued and outstanding
shares of the Corporation entitled to vote at such meeting shall be necessary in
order to constitute a quorum for the transaction of any business. If there shall
not be a quorum at any meeting of the stockholders, the holders of a majority of
the shares entitled to vote present at such meeting, in person or by proxy, may
adjourn such meeting from time to time, without further notice to the
stockholders other than an announcement at such meeting, until holders of the
amount of shares required to constitute a quorum shall be present in person or
by proxy.
Section 7. Voting. Each stockholder shall be entitled to one vote for each
share of capital stock held by such stockholder. Voting need not be by ballot,
except that all election of directors shall be by written ballot unless
otherwise provided in the Certificate of Incorporation. Whenever any
3
<PAGE>
corporate action is to be taken by vote of the stockholders, it shall, except as
otherwise required by law or by the Certificate of Incorporation, be authorized
by a majority of the votes cast at a meeting of stockholders of the holders of
shares entitled to vote thereon, except that all elections shall be decided by a
plurality of the votes cast.
Section 8. Action Without a Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken without a
meeting thereof, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
such corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 9. Record Date. The Board of Directors may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of any meeting of stockholders, nor more than sixty days prior to any
other action, as the record date for the purpose of determining the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or to express
4
<PAGE>
consent to corporate action in writing without a meeting, or entitled to receive
payment of any dividend or distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
ARTICLE II
Directors
Section 1. Number; Qualifications. The Board of Directors shall consist of
one or more members. The number of directors shall be fixed by the Board of
Directors. Directors need not be stockholders of the Corporation.
Section 2. Term of office. Each director shall hold office until his or her
successor is elected and qualified or until his or her earlier death,
resignation or removal.
Section 3. Meetings. A meeting of the Board of Directors shall be held for
the election of officers and for the transaction of such other business as may
come before such meeting as soon as practicable after the annual meeting of the
5
<PAGE>
stockholders. Other regular meetings of the Board of Directors may be held at
such times as the Board of Directors of the Corporation may from time to time
determine. Special meetings of the Board of Directors may be called at any time
by the President of the Corporation or by a majority of the directors then in
office. Meetings of the Board of Directors may be held within or without the
State of Delaware.
Section 4. Notice of Meetings; Waiver of Notice; Adiournment. No notice
need be given of the first meeting of the Board of Directors after the annual
meeting of stockholders or of any other regular meeting of the Board of
Directors. Notice of a special meeting of the Board of Directors, specifying the
place, date and hour thereof, shall be delivered personally, mailed or
telegraphed to each director at his or her address as such address appears on
the books of the Corporation at least two business days (Saturdays, Sundays and
legal holidays not being considered business days for the purpose of these
By-Laws) before the date of such meeting. Whenever notice is required to be
given under any provision of the Certificate of Incorporation or these By-Laws,
a written waiver thereof, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a director at a special meeting shall constitute a waiver of
notice of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not
6
<PAGE>
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, the directors or
any committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these By-Laws. A
majority of the directors present whether or not a quorum is present, may
adjourn any meeting to another time and place. Notice need not be given of the
adjourned meeting if the time and place to which the meeting is adjourned are
announced at the meeting at which the adjournment is taken, and at the adjourned
meeting any business may be transacted that might have been transacted at the
original meeting.
Section 5. Quorum; Voting. A majority of the total number of directors
shall constitute a quorum for the transaction of business. The vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 6. Participation by Telephone. Members of the Board of Directors or
any committee thereof may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
7
<PAGE>
Section 7. Action Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board of Directors or such
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceeding of the Board of Directors or
of such committee.
Section 8. Committees. The Board of Directors may, by resolution passed by
a majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors. Any such committee, to the extent
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize the
seal of the Corporation to be affixed by the officers on all papers which may
require it, but no such committee shall have the power or authority in reference
to (a) amending the Certificate of Incorporation (except that a committee may,
to the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board of Directors, fix the
designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of the assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the
8
<PAGE>
Corporation, or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series); (b) adopting an agreement of
merger or consolidation; (c) recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets;
(d) recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution; or (e) amending these By-Laws and, unless the
resolution expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. The Board
of Directors may designate one or more directors as alternate members of any
such committee, who may replace any absent or disqualified member at any meeting
of such committee. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not constituting a quorum, may unanimously
appoint another director to act at the meeting in the place of such absent or
disqualified member.
Section 9. Removal; Resignation. Any director or the entire Board of
Directors may be removed with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors. Any director may
resign at any time, upon written notice to the Corporation.
Section 10. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized
9
<PAGE>
number of directors may be filled by a majority of directors then in office,
although less than a quorum, or by a sole remaining director. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office as provided above in the filling of
other vacancies. A director elected to fill a vacancy shall hold office for the
unexpired term of his or her predecessor.
Section 11. Compensation. The Board of Directors may fix the compensation
of directors.
ARTICLE III
Officers
Section 1. Election; Qualifications. At the first meeting of the Board of
Directors and as soon as practicable after each annual meeting of stockholders,
the Board of Directors shall elect or appoint a President, one or more Vice
Presidents, a Secretary and a Treasurer, and may elect or appoint at such time
or from time to time such additional officers as the Board of Directors deems
advisable. No officer need be a director of the Corporation. Any number of
offices may be held by the same person, except that there shall always be two
persons who hold
10
<PAGE>
offices which entitle them to sign instruments and stock certificates.
Section 2. Term of Office; Vacancies. Each officer shall hold office until
the election and qualification of his or her successor or until his or her
earlier death, resignation or removal. Any vacancy occurring in any office,
whether because of death, resignation or removal, with or without cause, or
otherwise, shall be filled by the Board of Directors.
Section 3. Removal; Resignation. Any officer may be removed from office at
any time with or without cause by the Board of Directors. Any officer may resign
his or her office at any time upon written notice to the Corporation.
Section 4. Powers and Duties of the President. The President shall be the
chief executive, operating and administrative officer of the Corporation and
shall have general charge and supervision of its business affairs,
administration and operations. The President shall from time to time make such
reports concerning the Corporation as the Board of Directors of the Corporation
may require. The President shall preside at all meetings of the stockholders and
the Board of Directors. The President shall be given such other titles and
designations and shall have such other powers and shall perform such other
duties
11
<PAGE>
as may from time to time be assigned to him or her by the Board of Directors.
Section 5. Powers and Duties of the Vice-Presidents. Each of the Vice-
Presidents shall be given such titles and designations and shall have such
powers and perform such duties as may from time to time be assigned to him or
her by the Board of Directors.
Section 6. Powers and Duties of the Secretary. The Secretary shall record
and keep the minutes of all meetings of the stockholders and of the Board of
Directors in a book to be kept for that purpose. The Secretary shall attend to
the giving and serving of all notices by the Corporation. The Secretary shall be
the custodian of, and shall make or cause to be made the proper entries in, the
minute book of the Corporation and such other books and records as the Board of
Directors may direct. The Secretary shall be the custodian of the corporate seal
of the Corporation and shall affix or cause to be affixed such seal to such
contracts and other instruments as the Board of Directors may direct. The
Secretary shall have such other powers and shall perform such other duties as
may from time to time be assigned to him or her by the Board of Directors.
Section 7. Powers and Duties of the Treasurer. The Treasurer shall be the
custodian of all funds and securities of the Corporation. Whenever required by
the Board of Directors, the Treasurer shall render a statement of the
Corporation's cash
12
<PAGE>
and other accounts, and shall cause to be entered regularly in the proper books
and records of the Corporation to be kept for such purpose full and accurate
accounts of the Corporation's receipts and disbursements. The Treasurer shall at
all reasonable times exhibit the Corporation's books and accounts to any
director of the Corporation upon application at the principal office of the
Corporation during business hours. The Treasurer shall have such other powers
and shall perform such other duties as may from time to time be assigned to him
or her by the Board of Directors.
Section 8. Delegation. In the event of the absence of any officer of the
Corporation or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors may at any time or from time to time delegate
all or any part of the powers or duties of any officer to any other officer or
officers or to any director or directors.
ARTICLE IV
Stock
The shares of the Corporation shall be represented by certificates signed
by the President or any Vice-President and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary. Any of or all the signatures
on the certificate may be a facsimile.
13
<PAGE>
ARTICLE V
Execution of Documents
All contracts, agreements, instruments, bills payable, notes, checks,
drafts, warrants or other obligations of the Corporation shall be made in the
name of the Corporation and shall be signed by such officer or officers as the
Board of Directors may from time to time designate.
ARTICLE VI
Seal
The seal of the Corporation shall contain the name of the Corporation, the
words "Corporate Seal," the year of its organization and the word "Delaware."
ARTICLE VII
Indemnification
Section 1. Indemnification. The Corporation hereby agrees to hold harmless
and indemnify any of its officers, directors, employees or agents from and
against, and to reimburse such persons for, any and all judgments, fines,
liabilities, amounts paid in settlement and expenses, including attorney's fees,
incurred directly or indirectly as a result of or in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, whether or not such action, suit or
proceeding is by or in the right of the Corporation to procure a judgment in its
favor,
14
<PAGE>
including an action, suit or proceeding by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise for which such person
served in any capacity at the request of the Corporation, to which such person
is, was or at any time becomes a party, or is threatened to be made a party, or
as a result of or in connection with any appeal therein, by reason of the fact
that such person is, was or at any time becomes a director, officer, employee or
agent of the Corporation or is or was serving or at any time serves such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity, whether arising out of any breach of such person's
fiduciary duty as a director, officer, employee or agent of such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise under any state or federal law or otherwise; provided, however, that
(i) indemnification shall be paid pursuant to this Article VII if and only if
such person acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and (ii) no indemnification shall be payable pursuant to
this Article VII if a court having jurisdiction in the matter shall determine
that such indemnification is not lawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contenders or its
15
<PAGE>
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful. No indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 2. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period such person shall
serve as a director, officer, employee or agent of the Corporation and shall
continue thereafter so long as such person shall be subject to any possible
claim or threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person was a director or officer of the Corporation or served at the
request of the Corporation in any capacity for any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
16
<PAGE>
Section 3. Advancement and Repayment of Expenses. Expenses incurred by an
officer, director, employee or agent in defending any threatened or pending
action, suit or proceeding, whether civil, criminal, administrative or
investigative, shall be paid by the Corporation in advance of the final
disposition thereof, other than those expenses for which such director or
officer is not entitled to indemnification pursuant to the proviso to, or the
last sentence of, Section 1 of this Article VII. The Corporation shall make such
payments upon receipt of (i) a written request made by such person for payment
of such expenses, (ii) an undertaking by or on behalf of such person to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Corporation as authorized herein and (iii) evidence
satisfactory to the Corporation as to the amount of such expenses.
Section 4. Authorization. Any indemnification under this Article VII
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 1 of this Article VII. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent
17
<PAGE>
legal counsel in a written opinion, or (iii) by the stockholders of the
Corporation.
Section 5. Notification and Defense of Claim. Promptly after receipt by a
person seeking indemnification pursuant to this Article VII of notice of the
commencement of any action, suit or proceeding, such person will, if a claim in
respect thereof is to be made against the Corporation under this Article VII,
notify the Corporation of the commencement thereof; but the omission so to
notify the Corporation will not relieve it from any liability which it may have
to such person otherwise than under this Article VII. With respect to any such
action, suit or proceeding as to which such person notifies the Corporation of
the commencement thereof:
A. The Corporation will be entitled to participate therein at its own
expense;
B. Except as otherwise provided below, to the extent that it may wish, the
Corporation jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel satisfactory to the person
to be indemnified. After notice from the Corporation to the person to be
indemnified of its election so to assume the defense thereof, the Corporation
will not be liable to such person under this Article VII for any legal or other
expenses subsequently incurred by such person in connection with the defense
thereof other than reasonable costs of investigation or as otherwise
18
<PAGE>
provided below. The person to be indemnified shall have the right to employ his
or her own counsel in such action, suit or proceeding but the fees and expenses
of such counsel incurred after notice from the Corporation of its assumption of
the defense thereof shall be at the expense of such person unless (i) the
employment of counsel by such person has been authorized by the Corporation in
connection with the defense of such action, (ii) such person shall have
reasonably concluded that there may be a conflict of interest between the
Corporation and such person in the conduct of the defense of such action, or
(iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of counsel
for such person shall be borne by the Corporation (it being understood, however,
that the Corporation shall not be liable for the expenses of more than one
counsel for such person in connection with any action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances). The Corporation shall not be entitled to assume
the defense of any action, suit or proceeding brought by or on behalf of the
Corporation or as to which such person shall have made the conclusion provided
for in clause (ii)above; and
C. Anything in this Section 5 to the contrary notwithstanding, the
Corporation shall not be liable to indemnify any person seeking indemnification
under this Article VII for any amounts paid in settlement of any action or claim
effected with-
19
<PAGE>
out its written consent. The Corporation shall not settle any action or claim in
any manner which would impose any penalty or limitation on the person to be
indemnified without such person's written consent. Neither the Corporation nor
any such person will unreasonably withhold their consent to any proposed
settlement.
Section 6. Nonexclusivity. The indemnification and advancement of expenses
provided by or granted pursuant to this Article VII shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under the General Corporation Law of the
State of Delaware, the Corporation's Certificate of Incorporation, as amended,
the Corporation's By-Laws, as now in effect or as hereafter amended, any
agreement, any vote of stockholders or directors, any applicable law, or
otherwise.
Section 7. Indemnification of Other Expenses. In the event any person
seeking indemnification hereunder is required to bring any action to enforce
rights or to collect monies due under this Article VII and is successful in such
action, the Corporation shall reimburse such person for all costs and expenses,
including attorney's fees, incurred by such person in connection with such
action.
Section 8. Length of Effectiveness. The indemnification and advancement of
expenses provided by or granted pursuant to this By-Law shall continue as to a
person who has ceased to be
20
<PAGE>
a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VIII
Amendment of By-Laws
These By-Laws may be amended or repealed, and any new By-Law may be
adopted, by the stockholders entitled to vote or by the Board of Directors.
21
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this day of , 1998, by and between Muse
Technologies, Inc., a Delaware corporation (the "Company") and American Stock
Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
W I T N E S S E T H:
WHEREAS, in connection with a public offering of 1,200,000 units (the
"Units"), each Unit consisting of one share of common stock, par value $.015
per share ("Common Stock"), and a Class A Redeemable Common Stock Purchase
Warrant (collectively, the "Warrants") to purchase one-half share of Common
Stock, pursuant to an underwriting agreement (the "Underwriting Agreement")
dated as of [ ], 1998, between the Company and HD Brous & Co., Inc. (the
"Underwriter"), the Company may issue up to six hundred ninety thousand
(690,000) Warrants; and
WHEREAS, in connection with the issuance, pursuant to the
Underwriting Agreement, to the Underwriter or its designees of a unit purchase
option (the "Underwriter's Option"), the Company may issue up to sixty
thousand (60,000) Warrants; and
WHEREAS, at the date of this Agreement there are outstanding four
hundred twenty three thousand eight hundred eighty one (423,881) Warrants held
by certain selling securityholders; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection with
the issuance, registration, transfer, exchange and redemption of the Warrants,
as hereinafter defined, the issuance of certificates representing the
Warrants, the exercise of the Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders
of certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings, unless the context shall otherwise require:
(a) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal
business shall be administered, which office is located at the date of this
Agreement at 40 Wall Street, 46th floor, New York, New York 10005.
(b) "Effective Date" shall mean the date that the
Registration Statement is declared effective by the Securities and Exchange
Commission (the "Commission").
- 1 -
<PAGE>
(c) "Exercise Date" shall mean, as to any Warrant, the date
on which the Warrant Agent shall have received both (a) the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the Purchase Price; provided, however, that, subject to
Paragraph 4 of this Agreement, if payment shall be made by personal or
corporate check, the exercise of the Warrant shall not be effective until the
Warrant Agent shall be satisfied that the check shall have cleared; provided,
further, that if such payment is made prior to the Warrant Expiration Date or
the expiration of a period during which a reduced Purchase Price is in effect
pursuant to Paragraph 9(f) of this Agreement and the check shall not have
cleared until after the Warrant Expiration Date or such other date, then the
Warrant shall be deemed to have been exercised immediately prior to 5:00 P.M.
New York City time on the Warrant Expiration Date.
(d) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be nine and 60/100 dollars ($9.60) per share, subject to
adjustment from time to time pursuant to the provisions of Paragraph 9 of this
Agreement.
(e) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
of this Agreement, which price shall be one cent ($.01) per Warrant. The
Redemption Price shall not be subject to adjustment pursuant to this
Agreement.
(f) "Registration Statement" shall mean the Company's
registration statement on Form SB-2, File No. 333- , which was declared
effective by the Commission on [ ], 1998.
(g) "Registered Holder" shall mean, as to any Warrant and as
of any particular date, the person in whose name the certificate representing
the Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Paragraph 6 of this Agreement.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Certificate" shall mean the certificates
(attached hereto as Exhibit A);
(j) "Warrant Expiration Date" shall mean 5:00 P.M. New York
City time on the first to occur of (i) [ ], 2003, or (ii) the business day
immediately preceding the Redemption
- 2 -
<PAGE>
Date, as defined in Paragraph 8(c) of this Agreement; provided, that if such
date shall in the State of New York be a holiday or a day on which banks are
authorized or required to close, the Warrant Expiration Date shall be the next
day which is not such a date. Upon notice to all warrant holders the Company
shall have the right to extend the Warrant Expiration Date.
(k) "Warrant Shares" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
(l) "Warrants" shall mean the Warrants.
2. Warrants and Issuance of Warrants Certificates.
(a) Each Warrant initially shall entitle the Registered
Holder of the Warrant Certificate representing such Warrant to purchase one
(1) share of Common Stock upon the exercise thereof, in accordance with the
terms of this Agreement, subject to modification and adjustment as provided in
Paragraph 9 of this Agreement.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants initially issuable pursuant to the
Underwriting Agreement shall be executed by the Company and delivered to the
Warrant Agent. Upon written order of the Company signed by its President or
Chairman or a Vice President and by its Secretary or an Assistant Secretary or
its Treasurer or an Assistant Treasurer, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date,
the Transfer Agent shall countersign and deliver stock certificates in
required whole number denominations representing the shares of Common Stock
issuable upon the exercise of Warrants in accordance with this Agreement.
(d) From time to time, up to the Warrant Expiration Date,
the Warrant Agent shall countersign and deliver Warrant Certificates in
required whole number denominations to the persons entitled thereto in
connection with any transfer or exchange permitted under this Agreement;
provided that no Warrant Certificates shall be issued except (i) those
initially issued hereunder or otherwise issuable pursuant to the Underwriting
Agreement, including those issuable in exchange for certain outstanding
warrants, (ii) those issued on or after the date of this Agreement, upon the
exercise of fewer than all Warrants represented by any Warrant Certificate, to
evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Paragraph 6 of
this Agreement; (iv) those issued in replacement of lost, stolen, destroyed or
mutilated Warrant Certificates pursuant to Paragraph 7 of this Agreement; (v)
those issued pursuant to the Underwriter's Option, and (vi) at the option of
the Company, in such form as may be approved by the Board of Directors, to
reflect any
- 3 -
<PAGE>
adjustment or change in the Purchase Price or the number of shares of Common
Stock purchasable upon exercise of the Warrants made pursuant to Paragraph 9
of this Agreement. In addition, at the discretion of the Company, the Company
may authorize the issuance of additional Warrants, which shall be subject to
the provisions of this Agreement.
3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates for the Warrants shall be
substantially in the form annexed as Exhibit A to this Agreement, (the
provisions of which are hereby incorporated herein) and may have such letters,
numbers or other marks of identification or designation and such legends,
summaries or endorsements printed, lithographed or engraved thereon as the
Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any law or with any
rule or regulation made pursuant thereto or with any rule or regulation of any
stock exchange on which the Warrants may be listed, or to conform to usage or
to the requirements of Paragraph 2(b) of this Agreement. The Warrant
Certificates shall be dated the date of issuance thereof (whether upon initial
issuance, transfer or exchange in lieu of mutilated, lost, stolen, or
destroyed Warrant Certificates) and issued in registered form. Warrant
Certificates shall be numbered serially with the letter M or other letters
acceptable to the Company and the Warrant Agent.
(b) Warrant Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President and by
its Secretary or an Assistant Secretary, by manual signatures or by facsimile
signatures printed thereon, and shall have imprinted thereon a facsimile of
the Company's seal. Warrant Certificates shall be manually countersigned by
the Warrant Agent and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Warrant Certificates shall cease to be an officer of the Company or to
hold the particular office referenced in the Warrant Certificate before the
date of issuance of the Warrant Certificates or before countersignature by the
Warrant Agent and issue and delivery thereof, such Warrant Certificates may
nevertheless be countersigned by the Warrant Agent, issued and delivered with
the same force and effect as though the person who signed the Warrant
Certificates had not ceased to be an officer of the Company or to hold such
office. After countersignature by the Warrant Agent, Warrant Certificates
shall be delivered by the Warrant Agent to the Registered Holder without
further action by the Company, except as otherwise provided by Paragraph 4 of
this Agreement.
4. Exercise. Each Warrant may be exercised by the Registered
Holder thereof at any time after the issuance thereof, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein and in the Warrant Certificate. A Warrant shall be
- 4 -
<PAGE>
deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the holder
of those securities upon the exercise of the Warrant as of the close of
business on the Exercise Date. As soon as practicable on or after the Exercise
Date, the Warrant Agent shall deposit the proceeds received from the exercise
of a Warrant and shall notify the Company in writing of the exercise of the
Warrant. Promptly following, and in any event within five (5) days after the
date of such notice from the Warrant Agent, the Warrant Agent, on behalf of
the Company, shall cause to be issued and delivered by the Transfer Agent, to
the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise, (plus a
certificate for any remaining unexercised Warrants of the Registered Holder)
unless prior to the date of issuance of such certificates the Company shall
instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of the Underwriter or
such other investment banks and brokerage houses as the Company shall approve
in writing to the Warrant Agent, by the Underwriter or such other investment
bank or brokerage house, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose
of issue upon exercise of Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Warrants. The
Company covenants that all Warrant Shares shall, at the time of delivery in
accordance with this Agreement, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof (other than those which the Company shall promptly pay or
discharge), and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common
Stock of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require
registration with, or approval of, any governmental authority under any
Federal securities law before such securities may be validly issued or
- 5 -
<PAGE>
delivered upon such exercise, then the Company will in good faith and as
expeditiously as reasonably possible, endeavor to secure such registration or
approval. The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws. With
respect to any such securities, however, Warrants may not be exercised by, or
shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
(d) The Warrant Agent is hereby irrevocably authorized to
requisition the Company's Transfer Agent from time to time for certificates
representing shares of Common Stock issuable upon exercise of the Warrants,
and the Company will authorize the Transfer Agent to comply with all such
proper requisitions. The Company will file with the Warrant Agent a statement
setting forth the name and address of the Transfer Agent of the Company for
shares of Common Stock issuable upon exercise of the Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office,
and upon satisfaction of the terms and provisions of this Agreement, the
Company shall execute and the Warrant Agent shall countersign, issue and
deliver in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in
which, subject to such reasonable regulations as it may prescribe, it shall
register Warrant Certificates and the transfer thereof in accordance with its
regular practice. Upon due presentment for registration of transfer of any
Warrant Certificate at such office, the Company shall execute and the Warrant
Agent shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of
Warrants.
- 6 -
<PAGE>
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form
on the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory
to the Company and the Warrant Agent, duly executed by the Registered Holder
or his attorney-in-fact duly authorized in writing.
(d) A reasonable service charge may be imposed by the
Warrant Agent for any exchange or registration of transfer of Warrant
Certificates. In addition, the Company may require payment by such holder of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any exchanges, registration or transfer of Warrant
Certificates.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled
by the Warrant Agent and thereafter retained by the Warrant Agent until
termination of this Agreement or resignation as Warrant Agent, or, with the
prior written consent of the Underwriter, disposed of or destroyed, at the
direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by
any notice to the contrary.
(g) Notwithstanding any other provisions of this Agreement,
no Warrants issued upon exercise of the Underwriter's Option and no shares of
Common Stock issuable upon exercise of such Warrants may be sold, transferred,
assigned or hypothecated for a period of one year from the Effective Date
except to the officers of the Underwriters or to selling group members or
officers or partners thereof, all of whom shall be bound by such restrictions.
Until the expiration of such one-year period, Warrant certificates and stock
certificates shall be marked with a legend referring to such restriction.
7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the case
of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a bona
fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal
- 7 -
<PAGE>
aggregate number of Warrants. Applicants for a substitute Warrant Certificate
shall comply with such other reasonable regulations and pay such other
reasonable charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Commencing twelve (12) months from the Effective Date or
earlier with the consent of the Underwriter, the Company shall have the right,
on not less than thirty (30) nor more than sixty (60) days notice given prior
to the Redemption Date, as hereinafter defined, at any time to redeem the then
outstanding Warrants at the Redemption Price, provided that the Market Price
of the Common Stock shall equal or exceed the "Target Price." The "Target
Price" shall mean one hundred twenty five percent (125%) of the Purchase
Price. Market Price for the purpose of this Paragraph 8 shall mean, if the
Common Stock is listed on the Nasdaq Stock Market or the New York or American
Stock Exchange, the average last reported sales price (or, if no sale is
reported on any such trading day, the average of the closing bid and asked
prices) on the principal market for the Common Stock or, if the Common Stock
is not so listed or traded, the average the last reported bid prices of the
Common Stock, during the twenty (20) day period ending within five (5) days of
the date the Warrants are called for redemption. Notice of redemption shall be
mailed by first class mail, postage prepaid, not later than five (5) business
days (or such longer period to which the Underwriter may consent) after the
date the Warrants are called for redemption. All Warrants must be redeemed if
any Warrants are redeemed.
(b) If the conditions set forth in Paragraph 8(a) of this
Agreement are met, and the Company desires to exercise its right to redeem the
Warrants, it shall request the Underwriter or the Warrant Agent to mail the
notice of redemption referred to in said Paragraph 8(a) to each of the
Registered Holders of the Warrants to be redeemed, first class, postage
prepaid, not earlier than the sixtieth (60th) day nor later than the thirtieth
(30th) day before the date fixed for redemption, at their last addresses as
shall appear on the records maintained pursuant to Paragraph 6(b) of this
Agreement. Any notice mailed in the manner provided herein shall be
conclusively presumed to have been duly given whether or not the Registered
Holder receives such notice. The Warrant Agent agrees to mail such notice if
requested by the Company or the Underwriter.
(c) The notice of redemption shall specify (i) the
Redemption Price, (ii) the date fixed for redemption, (iii) the place where
the Warrant Certificates shall be delivered and the redemption price to be
paid, and (iv) that the right to exercise the Warrants shall terminate at 5:00
p.m. (New York City time) on the business day immediately preceding the date
fixed for redemption. The date fixed for the redemption of the Warrants shall
be the Redemption Date.
- 8 -
<PAGE>
No failure to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such redemption
except as to a Registered Holder (A) to whom notice was not mailed or (B)
whose notice was defective. An affidavit of the Warrant Agent or of the
Secretary or an Assistant Secretary of the Representative or the Company that
notice of redemption has been mailed shall, in the absence of fraud, be prima
facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00
p.m. (New York City time) on the business day immediately preceding the
Redemption Date. After such time, Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the
Redemption Price without interest, subject to the provisions of applicable
laws relating to the treatment of abandoned property. In the event that the
Warrants or the Warrant Shares shall not be subject to a current and effective
registration statement under the Securities Act of 1933, as amended, at any
time subsequent to the date the Warrants are called for redemption, the notice
of redemption shall not be effective and shall be deemed for all purposes not
to have been given. Nothing in the preceding sentence shall be construed to
prohibit or restrict the Company from thereafter calling the Warrants for
redemption in the manner provided for, and subject to the provisions of, this
Paragraph 8.
(e) From and after the Redemption Date with respect to the
Warrants, the Company shall, at the place specified in the notice of
redemption, upon presentation and surrender to the Company by or on behalf of
the Registered Holder thereof of one or more Warrant Certificates evidencing
Warrants to be redeemed, deliver or cause to be delivered to or upon the
written order of such Holder a sum in cash equal to the Redemption Price of
each such Warrant. From and after the Redemption Date and upon the deposit or
setting aside by the Company of a sum sufficient to redeem all the Warrants
called for redemption, such Warrants shall expire and become void and all
rights hereunder and under the Warrant Certificates, except the right to
receive payment of the Redemption Price, shall cease.
(f) Notwithstanding any other provision of this Agreement,
the Company shall not call the Warrants for redemption unless there is, at the
time the Warrants are called for redemption, a current and effective
registration statement or a post-effective amendment to the registration
statement covering the issuance of the shares of Common Stock issuable upon
exercise of the Warrants.
(g) In the event that the Underwriter's Option is exercised
at a time subsequent to the redemption of the Warrants but prior to the
Warrant Expiration Date, as defined in Paragraph 1(j) of this Agreement, then,
notwithstanding any other provisions of this Agreement,
- 9 -
<PAGE>
the Warrants issued upon such exercise may be redeemed by the Company at any
time after issuance.
9. Adjustment of Exercise Price and Number of Securities Issuable
upon Exercise of Warrants.
(a) In case the Company shall, at any time or from time to
time after the date of this Agreement, pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock, subdivide or
reclassify its outstanding Common Stock into a greater number of shares, or
combine or reclassify its outstanding Common Stock into a smaller number of
shares or otherwise effect a combination of shares or reverse split, the
Purchase Price in effect at the time of the record date for such dividend or
distribution or of the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of any
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares which, if such Warrant had been exercised
immediately prior to such time, he would have owned upon such exercise and
been entitled to receive upon such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any
event listed in this Paragraph 9(a) shall occur.
(b) In case the Company shall, at any time or from time to
time after the date of this Agreement, issue rights or warrants to all holders
of its Common Stock entitling them to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in Paragraph 9(e) of this Agreement) on the record
date mentioned below, the Purchase Price shall be adjusted so that the same
shall equal the price determined by multiplying the Purchase Price in effect
immediately prior to the date of such issuance by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the
record date mentioned below plus the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of
Common Stock so offered (or the aggregate conversion price of the convertible
securities so offered) would purchase at such current market price per share
of the Common Stock, and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock offered for subscription or purchase (or
into which the convertible securities so offered are convertible). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not delivered (or securities
convertible into
- 10 -
<PAGE>
Common Stock are not delivered) after the expiration of such rights or
warrants, the Purchase Price shall be readjusted to the Purchase Price which
would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into Common Stock) actually
delivered.
(c) In case the Company shall, at any time or from time to
time after the date hereof, distribute to all holders of Common Stock
evidences of its indebtedness or assets (excluding cash dividends or
distributions paid out of current earnings and dividends or distributions
referred to in Paragraph 9(a) of this Agreement) or subscription rights or
warrants (excluding those referred to in Paragraph 9(b) of this Agreement),
then in each such case the Purchase Price in effect thereafter shall be
determined by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding multiplied by the current market price per
share of Common Stock (as defined in Paragraph 9(e) of this Agreement), less
the fair market value (as determined by the Company's Board of Directors) of
said assets or evidences of indebtedness so distributed or of such rights or
warrants, and of which the denominator shall be the total number of shares or
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such distribution.
(d) Whenever the Purchase Price payable upon exercise of
each Warrant is adjusted pursuant to Paragraphs 9(a), (b) or (c) of this
Agreement, the number of shares of Common Stock purchasable upon exercise of
each Warrant shall simultaneously be adjusted by multiplying the number of
shares issuable upon exercise of each Warrant in effect on the date thereof by
the Purchase Price in effect on the date thereof and dividing the product so
obtained by the Purchase Price, as adjusted.
(e) For the purpose of any computation pursuant to
Paragraphs 9(b) and (c) of this Agreement, the current market price per share
of Common Stock at any date shall be deemed to be the average of the daily
closing prices for thirty (30) consecutive business days commencing forty-five
(45) business days before such date. The closing price for each day shall be
the reported last sale price regular way or, in case no such reported sale
takes place on such day, the average of the last reported high bid and low
asked prices regular way, in either case on the principal national securities
exchange on which the Common Stock is admitted to trading or listed, if the
Common Stock is admitted to trading or listing on the New York or American
Stock
- 11 -
<PAGE>
Exchange or on The Nasdaq Stock Market if included in such system or if not
listed or admitted to trading on such exchange or system, the average of the
highest bid and lowest asked prices as reported by Nasdaq, or the National
Quotation Bureau, Inc. or another similar organization if Nasdaq is no longer
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors of the Company.
(f) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least two
cents ($0.02) in such price; provided, however, that any adjustments which by
reason of this Paragraph 9(f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph 9 shall be made to the nearest cent or to the nearest
one-tenth of a share, as the case may be. Anything in this Paragraph 9 to the
contrary notwithstanding, the Company may, upon notice to the record holders
of the Warrants, in its sole discretion, reduce the Purchase Price of the
Warrants, and, if such reduction is not otherwise required by this Paragraph
9, such reduction (i) will not, unless the Board of Directors otherwise
determines, result in any change in the number or class of shares of Common
Stock issuable upon exercise of such Warrants, and (ii) may be of limited
duration, in which event the reduction in Purchase Price shall not apply to
any Warrants exercised after the expiration of the time during which the
reduced Purchase Price is in effect.
(g) The Company may retain a firm of independent public
accountants (who may be the regular accountants employed by the Company) of
recognized standing selected by the Board of Directors of the Company to make
any computation required by this Paragraph 9, and a certificate signed by such
firm shall be conclusive evidence of the correctness of such adjustment.
(h) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph 9(a) of this Agreement, the holder of
any Warrant thereafter shall become entitled to receive any shares of the
Company, other than Common Stock, thereafter the number of such other shares
so receivable upon exercise of any Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock contained in Paragraphs 9(a)
to (f), inclusive, of this Agreement.
(i) The Company may elect, upon any adjustment of the
Purchase Price hereunder, to adjust the number of Warrants outstanding, in
lieu of the adjustment in the number of shares of Common Stock purchasable
upon the exercise of each Warrant as hereinabove provided, so that each
Warrant outstanding after such adjustment shall represent the right to
purchase one share of Common Stock. Each Warrant held of record and each
Warrant issuable
- 12 -
<PAGE>
upon exercise of the Underwriter's Option prior to such adjustment of the
number of Warrants shall become that number of Warrants or an Underwriter's
Option to purchase that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately
after such adjustment. Upon each adjustment of the number of Warrants pursuant
to this Paragraph 9, the Company shall, as promptly as practicable, cause to
be distributed to each Registered Holder of Warrant Certificates on the date
of such adjustment Warrant Certificates evidencing, subject to Paragraph 10 of
this Agreement, the number of additional Warrants to which such Holder shall
be entitled as a result of such adjustment or, at the option of the Company,
cause to be distributed to such Holder in substitution and replacement for the
Warrant Certificates held by him prior to the date of adjustment (and upon
surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled after
such adjustment. With respect to the Representative's Option, the Company
shall give the registered holders of the Representative's Option notice as to
the number of Warrants issuable in respect of such Representative's Option
reflecting such adjustment. Any Warrants or notice to registered holders of
Representative's Option may be mailed by the Warrant Agent or by first class
mail, postage prepaid.
(j) In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind
and number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provisions shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph 9. The Company
shall not effect any such consolidation, merger or sale
- 13 -
<PAGE>
unless, prior to or simultaneously with the consummation thereof, the
successor (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Warrant Agent, the obligation to deliver to the holder of each Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to purchase and the other obligations
under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that, as a result of any merger,
consolidation or similar transaction, all of the holders of Common Stock
receive and are entitled to receive no consideration other than cash in
respect of their shares of Common Stock, then, at the effective time of the
transaction, the rights to purchase Common Stock pursuant to the Warrants
shall terminate, and the holders of the Warrants shall, notwithstanding any
other provisions of this Agreement or the Warrants, receive in respect of each
Warrant to purchase one (1) share of Common Stock, upon presentation of the
Warrant Certificate, the amount by which the consideration per share of Common
Stock payable to the holders of Common Stock at such effective time exceeds
the Purchase Price in effect on such effective date, without giving effect to
the transaction. In the event that, subsequent to the effective time,
additional cash or other consideration is payable to the holders of Common
Stock of record as of the effective time, the same consideration shall be
payable to the holders of the Warrants to the extent that the total cash then
received by the holders of Common Stock exceeds the Purchase Price in effect
at such effective date, without giving effect to the transaction, with the
same effect as if the Warrants had been exercised on and as of such effective
time. In the event of any merger, consolidation, sale or lease of
substantially all of the Company's assets or reorganization whereby the
Company is not the surviving corporation, in lieu of the foregoing provisions
of this Paragraph 9(j), the Company may provide in the agreement relating to
the transaction that each Warrant shall become, be converted into or be
exchanged for, such securities of the surviving or acquiring corporation or
other entity as has a value equal to the value of the Warrants (which shall
not exceed the amount by which the consideration to be received per share of
Common Stock (valued on such date as the Company's board of directors shall
determine) exceeds the exercise price of the Warrant), the value of the
Warrants and securities being issued in exchange therefor to be determined by
the Company's Board of Directors, such determination to be final, binding and
conclusive on the Company and the holders of the Warrants. In the event that,
in such a transaction, the value of the consideration
- 14 -
<PAGE>
to be received per share of Common Stock is not greater than the exercise
price of the Warrants, the Warrants shall terminate and no consideration will
be paid with respect thereof.
(k) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable upon
exercise of the Warrants, the Warrant Certificates theretofore and thereafter
issued shall, unless the Company shall exercise its option to issue new
Warrant Certificates pursuant to Paragraphs 2(e) and 9(i) of this Agreement,
continue to express the Purchase Price per share, the number of shares
purchasable thereunder and the Redemption Price therefor as to the Purchase
Price per share, and the number of shares purchasable and the Redemption Price
therefore were expressed in the Warrant Certificates when the same were
originally issued.
(l) After any adjustment of the Purchase Price pursuant to
this Paragraph 9, the Company will promptly prepare a certificate signed by
the Chairman, President, Vice President or Treasurer, of the Company setting
forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of
Common Stock purchasable upon exercise of each Warrant after such adjustment,
and, if the Company shall have elected to adjust the number of Warrants, the
number of Warrants to which the registered holder of each Warrant shall then
be entitled, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by first class mail to the
Representative and to each registered holder of Warrants at his last address
as it shall appear on the registry books of the Warrant Agent. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity thereof. The affidavit of an officer of the Warrant Agent or the
Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, constitute prima facie evidence of the
facts stated therein.
(m) As used in this Paragraph 9, the term "Common Stock"
shall mean and include the Company's Common Stock authorized on the Effective
Date and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage
in respect of the rights of the holders thereof to participate in dividends
and in the distribution of assets upon the voluntary liquidation, dissolution
or winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include only shares of such class designated in
the Company's Certificate of Incorporation as Common Stock on the Effective
Date or, in the case of any reclassification, change, consolidation, merger,
sale or conveyance of the character referred to in Paragraph 9(j) of this
Agreement, the stock, securities or property provided for in such section or,
in the case of any reclassification or change in the outstanding shares of
Common Stock issuable upon exercise of the Warrants as
- 15 -
<PAGE>
a result of a subdivision or combination or consisting of a change in par
value, or from par value to no par value, or from no par value to par value,
such shares of Common Stock as so reclassified or changed.
(n) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to this Paragraph 9,
or as to the amount of any such adjustment, if required, shall be binding upon
the holders of the warrants and the Company if made in good faith by the Board
of Directors of the Company.
(o) In lieu of an adjustment pursuant to Paragraph 9(b) of
this Agreement, if the Company shall grant to the holders of Common Stock, as
such, rights or warrants to subscribe for or to purchase Common Stock or
securities convertible into or exchangeable for or carrying a right or warrant
to purchase Common Stock, the Company may concurrently therewith grant to each
Registered Holder as of the record date for such transaction of the Warrants
then outstanding, the rights or warrants to which each Registered Holder would
have been entitled if, on the record date used to determine the stockholders
entitled to the rights or warrants being granted by the Company, the
Registered Holder were the holder of record of the number of whole shares of
Common Stock then issuable upon exercise of his Warrants. If the Company
exercises such right no adjustment which otherwise might be called for
pursuant to said Paragraph 9(b) shall be made.
10. Fractional Warrants and Fractional Shares. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is
adjusted pursuant to Paragraph 9 of this Agreement, the Company nevertheless
shall not be required to issue fractions of shares, upon exercise of the
Warrants or otherwise, or to distribute certificates that evidence fractional
shares. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash equal to such
fraction multiplied by the current market value of such fractional share,
determined as follows:
(a) If the Common Stock is listed on the New York or
American Stock Exchange or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq Stock Market, the current value
shall be the reported last sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise of this Warrant,
or if no such sale is made on such day, the average closing bid and asked
prices for such day on such exchange or system; or
(b) If the Common Stock is not listed or admitted to
unlisted trading privileges, the current value shall be the last reported bid
price reported by the National Quotation Bureau, Inc. on the last business day
prior to the date of the exercise of this Warrant; or
- 16 -
<PAGE>
(c) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid prices are not so reported, the current
value shall be an amount determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained in this
Agreement be construed to confer upon the holder of Warrants, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action
(whether upon any recapitalization, issue or reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger or
conveyance or otherwise), or to receive notice of meetings, or to receive
dividends or subscription rights, until such Holder shall have exercised such
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own
benefit, enforce against the Company his right to exercise his Warrants for
the purchase of shares of Common Stock in the manner provide in the Warrant
Certificate and this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant, by
his acceptance of the Warrants, consents and agrees with the Company, the
Warrant Agent and every other holder of a Warrant that:
(a) The warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if the Warrant Certificates
representing such Warrants are surrendered at the office of the Warrant Agent,
duly endorsed or accompanied by a proper instrument of transfer satisfactory
to the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and
as the absolute, true and lawful owner of the Warrants represented thereby for
all purposes, and neither the Company nor the Warrant Agent shall be affected
by any notice or knowledge to the contrary, except as otherwise expressly
provided in Paragraph 6 of this Agreement.
- 17 -
<PAGE>
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and canceled by it and retired.
15. Concerning the Warrant Agent.
(a) The Warrant Agent acts hereunder as agent and in a
ministerial capacity for the Company, and its duties shall be determined
solely by the provisions of this Agreement. The Warrant Agent shall not, by
issuing and delivering Warrant certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization
of the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
(b) The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of Warrant Certificates to make or cause
to be made any adjustment of the Purchase Price or the Redemption Price
provided in this Agreement, or to determine whether any fact exists which may
require any such adjustments, or with respect to the nature or extent of any
such adjustment, when made, or with respect to the method employed in making
the same. It shall not (i) be liable for any recital or statement of facts
contained herein or for any action taken, suffered or omitted by it in
reliance on any Warrant Certificate or other document or instrument believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of
the Company to comply with any of its covenants and obligations contained in
this Agreement or in any Warrant Certificate, or (iii) be liable for any act
or omission in connection with this Agreement except for its own negligence or
wilful misconduct.
(c) The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
(d) Any notice, statement, instrument, request, direction,
order or demand of the Company shall be sufficiently evidenced by an
instrument signed by the Chairman of the Board, President, any Vice President,
its Secretary, or Assistant Secretary, unless other evidence in respect
thereof is specifically prescribed in this Agreement. The Warrant Agent shall
not be liable for any action taken, suffered or omitted by it in accordance
with such notice, statement, instruction, request, direction, order or demand
believed by it to be genuine.
- 18 -
<PAGE>
(e) The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save
it harmless against any and all costs and counsel fees, for anything done or
omitted by the Warrant Agent in the execution of its duties and powers
hereunder except losses, expenses and liabilities arising as a result of the
Warrant Agent's negligence or wilful misconduct.
(f) The Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Warrant Agent's own negligence or
wilful misconduct), after giving thirty (30) days' prior written notice to the
Company. At least fifteen (15) days prior to the date such resignation is to
become effective, the Warrant Agent shall cause a copy of such notice of
resignation to be mailed to the Registered Holder of each Warrant Certificate
at the Company's expense. Upon such resignation, or any inability of the
Warrant Agent to act as such under this Agreement, the Company shall appoint a
new warrant agent in writing. If the Company shall fail to make such
appointment within a period of fifteen (15) days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the
Registered Holder of any Warrant Certificate may apply to any court of
competent jurisdiction for the appointment of a new warrant agent. Any new
warrant agent, whether appointed by the Company or by such a court, shall be a
bank or trust company having a capital and surplus, as shown by its last
published report to its stockholders, of not less than $10,000,000 or a stock
transfer company. After acceptance in writing of such appointment by the new
warrant agent is received by the Company, such new warrant agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason, it shall be
necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning
Warrant Agent. Not later than the effective date of any such appointment the
Company shall file notice thereof with the resigning Warrant Agent and shall
forthwith cause a copy of such notice to be mailed to the Registered Holder of
each Warrant Certificate.
(g) Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further
act, provided that such corporation is eligible for appointment as successor
to the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant
- 19 -
<PAGE>
agent shall promptly cause notice of its succession as warrant agent to be
mailed to the Company and to the Registered Holder of each Warrant
Certificate.
(h) The Warrant Agent, its subsidiaries and affiliates, and
any of its or their officers or directors, may buy and hold or sell Warrants
or other securities of the Company and otherwise deal with the Company in the
same manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in
any other capacity for the Company or for any other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company may,
by supplemental agreement, make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall
not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of
the Registered Holders of Warrant Certificates representing not less than
fifty percent (50%) of the Warrants then outstanding; and provided, further,
that no change in the number or nature of the securities purchasable upon the
exercise of any Warrant, or the Purchase Price therefor, or the acceleration
of the Warrant Expiration Date, shall be made without the consent in writing
of the Registered Holder of the Warrant Certificate representing such Warrant,
other than such changes as are specifically prescribed by this Agreement as
originally executed or are made in compliance with applicable law; and
provided, further, that Paragraphs 4(b) and 4(c) may not be modified or
amended without the consent of the Underwriter.
17. Notices. All notices provided for in this Agreement shall be
in writing signed by the party giving such notice, and, unless otherwise
expressly provided in this Agreement, delivered personally or sent by overnight
courier or messenger against receipt thereof or sent by registered or certified
mail (air mail if overseas), return receipt requested, or by facsimile
transmission or similar means of communication. Notices sent by facsimile
transmission or similar means of communication shall be confirmed by
acknowledged receipt or by registered or certified mail, return receipt
requested. Notices shall be deemed to have been received on the date of
personal delivery or telecopy or, if sent by certified or registered mail,
return receipt requested, shall be deemed to be delivered on the third business
day after the date of mailing. Notices shall be sent to the Registered Holders
at their respective addresses on the Warrant Agent's warrant register, to the
Company at 1601 Randolph, SE, Suite 210, Albuquerque, NM 87106, telecopier
(505) 766- 9123, Attention: Mr. Curtiz J. Gangi, President and Chief Executive
Officer, and to the Warrant
- 20 -
<PAGE>
Agent at its Corporate Office, telecopier (718) 236-2641. Either party may, by
like notice, change the address, person or telecopier number to which notice
should be given.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements entered and to be performed wholly within such State, without regard
to principles of conflicts of laws. The parties hereby (a) irrevocably consent
and agree that any legal or equitable action or proceeding arising under or in
connection with this Agreement shall be brought exclusively in any Federal or
state court situated in New York County, New York, (b) irrevocably submit to
and accept, with respect to their respective properties and assets, generally
and unconditionally, the in personam jurisdiction of the aforesaid courts and
(c) agree that any process in any action commenced in such court under this
Agreement may be served upon such party personally, by certified or registered
mail, return receipt requested, or by overnight courier service which obtains
evidence of delivery, with the same full force and effect as if personally
served upon such party in New York City, in addition to any other method of
service permitted by law.
19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law,
or to impose upon any other person any duty, liability or obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Expiration Date of all the Warrants or such earlier date upon
which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it, and the provisions of Paragraph 15
of this Agreement shall survive any such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
- 21 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
MUSE TECHNOLOGIES, INC
By: ______________________________
Curtiz J. Gangi, President and CEO
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: ______________________________
, Authorized Officer
- 22 -
<PAGE>
EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. M- _______ Warrants
Void after , 2003 or earlier upon redemption.
MUSE TECHNOLOGIES, INC
CLASS A REDEEMABLE COMMON STOCK PURCHASE WARRANT
This certifies that FOR VALUE RECEIVED _________________or registered
assigns (the "Registered Holder") is the owner of the number of Class A
Redeemable Common Stock Purchase Warrants ("Warrants") specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one (1) fully paid and nonassessable share of Common
Stock, par value $.015 per share ("Common Stock"), of Muse Technologies, Inc.,
a Delaware corporation (the "Company"), at any time during the two-year period
commencing with the issuance of this Warrant and ending on the Expiration Date,
as hereinafter defined, by delivery of this Warrant, with the Subscription Form
on the reverse hereof duly executed, at the corporate office of American Stock
Transfer & Trust Company, as Warrant Agent, or its successor (the "Warrant
Agent"), accompanied by payment of $9.60, subject to adjustment as provided in
the Warrant Agreement (the "Purchase Price") in lawful money of the United
States of America in cash or by official bank or certified check made payable
to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are
issued pursuant to and are subject in all respects to the terms and conditions
set forth in the Warrant Agreement (the "Warrant Agreement"), dated as of
, 1998, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject
to modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificates or Warrant Certificates
of like tenor, which the Warrant Agent shall countersign, for the balance of
such Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York City time)
on , 2003 or earlier upon redemption as hereinafter provided. If such
date shall in the State of New York be a holiday or a day on which the banks
are authorized or required to close, then the Expiration Date shall mean 5:00
P.M. (New York City time) the next following day which in the State of New York
is not a holiday or a day on which banks are authorized or required to close.
Under certain circumstances as provided in the Warrant Agreement, the period
during which the Warrant may be exercised may be extended.
The Company shall not be obligated to deliver any securities pursuant
to the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to
become effective and to keep such registration statement current while any of
the Warrants are outstanding. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof
by the Registered Holder at the corporate office of the Warrant Agent, for a
new Warrant Certificate or Warrant Certificates of like tenor representing an
equal aggregate number of Warrants, each of such new Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender. Upon payment by the Registered Holder of
any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificate representing an equal aggregate
number
- 23 -
<PAGE>
of Warrants will be issued to the transferee in exchange therefor, subject to
the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or other distributions, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided in the Warrant
Agreement.
Commencing, , 1999, or earlier as provided in the Warrant
Agreement, this Warrant may be redeemed at the option of the Company, at a
redemption price of $.01 per Warrant at any time, provided the Market Price (as
defined in the Warrant Agreement) for the Common Stock issuable upon exercise
of such Warrant shall equal or exceed 125% of the Purchase Price. Notice of
redemption shall be given not later than the thirtieth (30th) day nor earlier
than the sixtieth (60th) day before the date fixed for redemption, all as
provided in the Warrant Agreement. On and after 5:00 P.M. (New York City time)
on the business day immediately preceding the date fixed for redemption, the
Registered Holder shall have no rights with respect to this Warrant except to
receive the $.01 per Warrant upon surrender of this Certificate. This Warrant
may only be called for redemption if, on the date the Warrant is called for
redemption, the issuance of the shares of Common Stock upon exercise of this
Warrant is subject to a current and effective registration statement.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements
executed and to be performed wholly within such State, without regard to
principles of conflicts of laws.
This Warrant Certificate is not valid unless countersigned by the
Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be duly executed, manually or in facsimile by two of its officers thereunto
duly authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: ___________ MUSE TECHNOLOGIES, INC
By: ______________________________
By: ______________________________
Countersigned:
AMERICAN STOCK TRANSFER & [Seal]
TRUST COMPANY
as Warrant Agent
By: __________________________
Authorized Officer
- 24 -
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $4.00 PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise ___________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________
_________________________
_________________________
_________________________
[please print or type name and address]
and be delivered to
_________________________
_________________________
_________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: _____________ x ____________________________
______________________________
______________________________
Address
______________________________
Taxpayer Identification Number
______________________________
Signature Medallion Guaranteed:
______________________________
- 25 -
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, ___________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________
_________________________
_________________________
_________________________
[please print or type name and address]
_____________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints ___________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: ________________ x ______________________________
Signature Medallion Guaranteed
______________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO
THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND
MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF
THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE
OR MIDWEST STOCK EXCHANGE.
- 26 -
<PAGE>
Exhibit 10.2
Lease
by and between
AIRPARK ASSOCIATES
(Landlord)
and
VIGA Technologies Corporation
-----------------------------
(Tenant)
for Leased Premises located in
Albuquerque, nm
---------------------------
<PAGE>
Table of Contents
Page
----
1. Term....................................................................4
2. Premises................................................................4
3. Possession..............................................................4
4. Rent....................................................................4
5. Security Deposit........................................................5
6. Operating Expense Adjustments...........................................5
7. Use.....................................................................6
8. Environmental Liability.................................................7
9. Compliance with Law.....................................................7
10. Alterations and Additions...............................................7
11. Maintenance and Repairs.................................................8
12. Liens...................................................................8
13. Assignment and Subletting...............................................8
14. Indemnification: Hold Harmless..........................................9
15. Subrogation.............................................................9
16. Liability Insurance.....................................................9
17. Services and Utilities.................................................10
18. Property Taxes.........................................................10
19. Rules and Regulations..................................................11
20. Holding over...........................................................11
21. Entry by Landlord......................................................11
22. Casualty Loss; Reconstruction..........................................11
23. Default................................................................12
24. Remedies upon Default..................................................13
25. Force Majeure..........................................................14
26. Eminent Domain.........................................................14
27. Estoppel Certificate...................................................14
28. Parking................................................................15
29. Authority of Parties...................................................15
30. Plats and Riders.......................................................15
31. Waiver.................................................................15
32. Notices................................................................16
33. Marginal Headings......................................................16
34. Time...................................................................16
35. Successors and Assigns.................................................16
36. Recordation............................................................16
37. Quiet Possession.......................................................16
38. Late Charges...........................................................16
39. Prior Agreements.......................................................16
40. Attorneys' Fees........................................................17
41. Sale of Premises by Landlord...........................................17
2
<PAGE>
42. Subordination, Attornment..............................................17
43. Name...................................................................17
44. Severability...........................................................17
45. Cumulative Remedies....................................................17
46. Choice of Law..........................................................18
47. Brokers................................................................18
48. Binding Effect.........................................................18
49. Gender; Number.........................................................18
50. Execution by Both Landlord and Tenant..................................18
3
<PAGE>
LEASE
THIS LEASE, effective the 6th day of September, 1995, is by and between AIRPARK
ASSOCIATES, with offices at 6100 Indian School Road, N.E., Albuquerque, New
Mexico 87110 (herein "Landlord") and VIGA Technologies Corporation with offices
at Sandia Labs, Albuquerque, New Mexico (herein "Tenant"), and is made in
consideration of the mutual covenants and Agreements hereinafter contained.
WHEREAS, Landlord and Tenant (herein "the parties") desire to enter into a Lease
whereby Tenant leases certain space from Landlord.
NOW, THEREFORE, for and in consideration of the rents, covenants and agreements
hereinafter contained, the parties agree as follows:
1. TERM. The term of this Lease shall be for six months commencing on the
15th day of September, 1995, and ending on the 14th day of March, 1996.
See Addendum #1
2. PREMISES. Landlord does hereby lease to Tenant and Tenant hereby leases
from Landlord that certain office space (herein called "Premises")
indicated on Exhibit "A", attached hereto and by this reference is made
a part hereof, said Premises being agreed, for the purpose of this
Lease, to have an area of approximately 6,359 Rentable square feet in
the 2nd floor of the building located at 1601 Randolph SE, Albuquerque,
New Mexico 87106.
Said Lease is subject to the terms, covenants and conditions herein set
forth and the Tenant covenants as a material part of the consideration
for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and that this
Lease is made upon the condition of said performance.
3. POSSESSION. If the Landlord, for any reason whatsoever, cannot deliver
possession of the said Premises to the Tenant at the commencement of
the term hereof, this Lease shall not be void or voidable, nor shall
Landlord be liable to Tenant for any loss or damage resulting
therefrom, nor shall the expiration date of the above term be in any
way extended, but in that event, all rent shall be abated during the
period between the commencement of said term and the time when Landlord
delivers possession.
In the event that Landlord shall permit Tenant to occupy the Premises
prior to the commencement date of the term, such occupancy shall be
subject to all the provisions of this Lease. Said early possession
shall not advance the termination date hereinabove provided.
4. RENT. Tenant agrees to pay to Landlord as rental, without prior notice
or demand, for the Premises the sum of $ See Addendum #1 Dollars per
year in monthly installments of $___________ dollars on or before the
first day of the first full calendar month of the term hereof and a
like sum on or before the first day of each and every successive
calendar month thereafter during the term hereof, except that the first
month's rent shall be paid upon the
4
<PAGE>
execution hereof. Rent for any period during the term hereof which is
for less than one (1) month shall be a pro-rated portion of the monthly
installments herein, based upon a thirty (30) day month. Said rental
shall be paid to Landlord, without deduction or offset in lawful money
of the United States of America, which shall be legal tender at the
time of payment at the office of the Building, or to such other person
or at such other place as Landlord may from time to time designate in
writing.
5. SECURITY DEPOSIT. Tenant, concurrently with the execution of this
Lease, has deposited with Landlord the sum of Six Thousand Six Hundred
and Twenty Three and 96/100 dollars ($6,623.96), the receipt of which
is hereby acknowledged by Landlord, which sum shall be retained by
Landlord as security for the payment by Tenant of all rents and other
payments herein agreed to be paid by Tenant, and for faithful
performance by Tenant of the terms, provisions, covenants and
conditions of this Lease.
If the Security Deposit is not utilized for any such purposes, then
such deposit shall be returned by Landlord to Tenant within thirty (30)
days next after the expiration of the term of this Lease. Landlord
shall not be required to pay Tenant any interest on said Security
Deposit.
6. OPERATING EXPENSE ADJUSTMENTS. For the purposes of this Article, the
following terms are defined as follows:
Base Year: The calendar year in which this lease term commences.
Comparison Year: Each calendar year of the term after the Base Year.
Direct Expenses: All direct costs of operation and maintenance, as
determined by standard accounting practices, and
shall include the following costs by way of
illustration, but not be limited to; real property
taxes and assessments; rent taxes, gross receipt
taxes, (whether assessed against the Landlord or
assessed against the Tenant and collected by
Landlord, or both); water and sewer charges;
insurance premiums; utilities; janitorial services;
labor; costs incurred in the management of the
Building, if any; air-conditioning and heating;
elevator maintenance; supplies; materials;
replacement parts; including maintenance, costs, and
upkeep of all parking and common areas. ("Direct
Expenses" shall not include depreciation on the
Building of which the Premises are a part or
equipment therein, loan payments, executive salaries
or real estate brokers' commissions.)
If the Direct Expenses paid or incurred by the Landlord for the
Comparison Year on account of the operation or maintenance of the
Building of which the Premises are a part are in excess of the Direct
Expenses paid or incurred for the Base Year, then the Tenant shall pay
its pro-rata percentage share of the increase. This percentage is that
portion of the total rentable area
5
<PAGE>
of the Building occupied by the Tenant hereunder. Landlord shall
endeavor to give to Tenant on or before the thirtieth (30th) day of
April of each year following the respective Comparison Year a statement
of the increase in rent payable by Tenant hereunder, but failure by
Landlord to give such statement by said date shall not constitute a
waiver by Landlord of its right to require an increase in rent. Upon
receipt of the statement for the first Comparison year, Tenant shall
pay in full the total amount of increase due for the first Comparison
Year, and in addition for the then current year, the amount of any such
increase shall be used as an estimate for said current year and this
amount shall be divided into twelve (12) equal monthly installments and
Tenant shall pay to Landlord, concurrently with the regular monthly
rent payment next due following the receipt of such statement, an
amount equal to one (1) monthly installment multiplied by the number of
months from January in the calendar year in which said statement is
submitted to the month of such payment, both months inclusive.
Subsequent installments shall be payable concurrently with the regular
monthly rent payments for the balance of that calendar year and shall
continue until the next Comparison Year's statement is rendered. If the
next or any succeeding Comparison Year results in a greater increase in
Direct Expenses, then upon receipt of a statement from Landlord, Tenant
shall pay a lump sum equal to such total increase in Direct Expenses
over the Base Year, less the total of the monthly installments of
estimated increases paid in the previous calendar year for which
comparison is then being made to the Base Year; and the estimated
monthly installments to be paid for the next year, following said
Comparison Year, shall be adjusted to reflect such increase. If in any
Comparison Year the Tenant's share of Direct Expenses be less than the
preceding year, then upon receipt of Landlord's statement, any
overpayment made by Tenant on the monthly installment basis provided
above shall be credit towards the next monthly rent falling due and the
estimated monthly installments of Direct Expenses to be paid shall be
adjusted to reflect such lower Direct Expenses for the most recent
Comparison Year.
Event though the term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's share of Direct
Expenses for the year in which this Lease terminates, Tenant shall
immediately pay any increase due over the estimated expenses paid and
conversely any overpayment made in the event said expenses decrease
shall be immediately rebated by Landlord to Tenant.
7. USE. Tenant shall use the Premises for general office and
administrative uses and shall not use or permit the Premises to be used
for any other purposes without the prior written consent of Landlord.
Tenant shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way
increase the existing rate of or affect any fire or other insurance
upon the Building or any of its contents, or cause cancellation of any
insurance policy covering said Building or any part thereof or any of
its contents. Tenant shall not do or permit anything to be done in or
about the Premises which will in any way obstruct or interfere with the
rights of other Tenants or occupants of the Building or injure or annoy
them or use or allow the Premises to be used for any improper, immoral,
unlawful or
6
<PAGE>
objectionable purpose, nor shall Tenant cause, maintain or permit any
nuisance in, on or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.
8. ENVIRONMENTAL LIABILITY. Landlord represents, to the best of Landlord's
knowledge that as of the Commencement Date of this Lease and during the
Term hereof no asbestos, PCBs, radon gas, petroleum or hazardous waste
or materials defined by local state or federal law, have been deposited
anywhere upon the real estate, Building, Common Areas or Leased
Premises, and Landlord agrees to indemnify and hold Tenant (its
officers, directors, employees or representatives) harmless from and
against any liability or costs resulting from Landlord's breach of this
warranty or Tenant's required compliance with environmental laws,
except for such compliance required as a result of Tenant's negligence,
intentional wrongful acts or breach of the obligations hereunder. This
indemnification and hold harmless shall survive the termination of this
Lease.
9. COMPLIANCE WITH LAW. Tenant Shall not use the Premises or permit
anything to be done in or about the Premises which will in any way
conflict with any law, statute, ordinance or governmental rule or
regulation now in force or which may hereafter be enacted or
promulgated. Tenant shall, at its sole cost and expenses, promptly
comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may hereinafter be in
force and with the requirements of any board of fire insurance
underwriters or other similar bodies now or hereafter constituted,
relating to, or affecting the condition, use or occupancy of the
Premises, excluding structural changes not related to, or affected by
Tenant's improvements or acts. Without limiting the foregoing, as to
the Premises, the Tenant shall comply with all requirements of the
Americans with Disabilities Act of 1990 (the "ADA") and any subsequent
related legislation. Landlord shall comply with all such ADA
requirements that relate to areas other than the Premises which are
owned by Landlord and not covered by another lease with another Tenant.
10. ALTERATIONS AND ADDITIONS. Tenant shall not make or suffer to be made
any alterations, additions or improvements to or of the Premises or any
part thereof without the written consent of Landlord first, including,
but not limited to, wall covering, paneling and built-in cabinet work,
excepting movable furniture and trade fixtures, shall on the expiration
of the term become a part of the realty and belong to the Landlord and
shall be surrendered with the Premises. In the event Landlord consents
to the making of any alterations, additions of improvements to the
Premises by Tenant, the same shall be made by Tenant at Tenant's sole
cost and expense, and any contractor or person selected by Tenant to
make the same must first be approved of in writing by the Landlord.
Upon the expiration or sooner termination of the term hereof, Tenant
shall upon written demand by Landlord, give at least thirty (30) days
prior to the end of the term, at Tenant's sole cost and expense,
forthwith and with all due diligence remove any alterations, additions,
or improvements made by Tenant, designated by Landlord to be removed,
and Tenant shall, forthwith and with all due diligence at its sole cost
and expense, repair any damage to the Premises caused by such removal
7
<PAGE>
11. MAINTENANCE AND REPAIRS. By taking possession of the Premises, Tenant
shall be deemed to have accepted the Premises as being in good,
sanitary order, condition and repair. Tenant shall repair any damage to
the Premises to the extent caused by the negligence or willful acts or
omissions of Tenant, its employees, agents, invitees or contractors.
Tenant shall maintain the interior surfaces of the Premises (including
the walls, ceilings and floor coverings) in good, clean condition,
ordinary wear and tear and damage caused by Landlord excepted. Tenant
shall upon the expiration or sooner termination of this Lease hereof
surrender the Premises to the Landlord in good condition, ordinary wear
and tear and damage from causes beyond the reasonable control of Tenant
excepted.
Except as specifically provided in an addendum, if any, to this Lease,
Landlord shall have no obligation whatsoever to alter, remodel,
improve, repair, decorate or paint the Premises or any part thereof and
the parties hereto affirm that Landlord has made no representations to
Tenant respecting the condition of the Premises or the Building except
as specifically herein set forth.
Notwithstanding the above, Landlord shall repair and maintain the
structural portions of the Building, including the basic plumbing, air
conditioning, heating and electrical systems, installed or furnished by
Landlord, unless such maintenance and repairs are caused in part or in
whole by the act, neglect, fault, or omission of any duty by the
Tenant, its agents, servants, employees or invitees, in which case
Tenant shall pay to Landlord the reasonable cost of such maintenance
and repairs. Landlord shall not be liable for any failure to make any
such repairs or to perform any maintenance unless such failure shall
persist for an unreasonable time after written notice of the need of
such repairs or maintenance is given to Landlord by Tenant. Except as
provided elsewhere, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with
Tenant's business arising from the making of any repairs, alterations
or improvements in or to any portion of the Building or the Premises or
in or to fixtures, appurtenances and equipment therein.
12. LIENS. Tenant shall keep the Premises and the property in which the
Premise are situated free from any liens arising out of any services
performed, materials furnished or obligations incurred by Tenant.
Landlord may require, at Landlord's sole option, that Tenant shall
provide the Landlord, at Tenant's sole cost and expense a lien and
completion bond in an amount equal to one and one-half (1.5) times any
and all estimated cost of any improvements, additions, or alterations
in the Premises, to insure Landlord against any liability for mechanics
and materialmens' liens and to insure completion of the work.
13. ASSIGNMENT AND SUBLETTING. Tenant shall not either voluntarily or by
operation of law, assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease or any interest therein, and shall not sublet the
said Premises or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person (the employees, agents,
servants, and invitees a Tenant excepted) to occupy or use the said
Premises, or any portion thereof, without the written consent of
Landlord first had and obtained, which consent shall not be
unreasonably withheld, and a consent to one assignment, subletting,
occupation or use by any other person
8
<PAGE>
shall not be deemed to be a consent to any subsequent assignment,
subletting, occupation or use by any another person. Any such
assignment or subletting without such consent shall be void and shall,
at the option of the Landlord, constitute a default under this Lease.
If Landlord allows any such assignment or subletting, the Tenant shall
remain liable for all of the obligations of the Tenant under the Lease
should the assignee or sublessee fail to meet its obligations.
14. INDEMNIFICATION: HOLD HARMLESS. Tenant shall indemnify Landlord (its
officers, directors, employees and representatives) and hold Landlord
harmless from and against any and all liability or costs resulting from
Tenant's (its employees', agents', representatives', contractors' or
invitees') negligence or intentional wrongful acts; conduct of Tenant's
business; performance or breach of Tenant's obligations under this
Lease; infringement upon the rights of third parties; and, use or
occupancy of the Building, the Common Areas or the Leased Premises.
Landlord shall indemnify and hold Tenant (its officers, directors,
employees and representatives) harmless from and against any and all
liability or costs resulting from Landlord's (its employees' agents',
representatives', contractors' or invitees') negligence or intentional
wrongful acts; conduct of Landlord's business; performance or breach of
Landlord's obligations or warranties under this Lease; infringement
upon the rights of third parties; and/or, use or occupancy of the
Building, the Common Areas or the Leased Premises. Landlord shall
promptly notify Tenant, in writing, of any complaints, claims, demands
or legal proceedings against Landlord relating to Tenant or the Leased
Premises. Tenant reserves the right to retain counsel of its choice, at
Landlord's expense, to defend against any such claims or actions.
15. SUBROGATION. As long as their respective insurers so permit, Landlord
and Tenant hereby mutually waive their respective rights of recovery
against each other from any loss insured by fire, extended coverage and
other property insurance policies existing for the benefit of the
respective parties. Each party shall obtain any special endorsements,
if required by their insurer to evidence compliance with the
aforementioned waiver.
16. LIABILITY INSURANCE. Tenant shall, at Tenant's expense, obtain and keep
in force during the term of this Lease a policy of comprehensive public
liability insurance insuring Landlord and Tenant against any liability
arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. The limit of said insurance
shall not, however, limit the liability of the Tenant hereunder. Tenant
may carry said insurance under a blanket policy, providing, however,
said insurance by Tenant shall have a Landlord's protective liability
endorsement attached thereto. If Tenant shall fail to procure and
maintain said insurance, Landlord may, but shall not be required to,
procure and maintain same, but at the expense of Tenant. Insurance
required hereunder shall be in companies approved in advance by
Landlord. Tenant shall deliver to Landlord prior to occupancy of the
Premises copies of policies of liability insurance required herein or
certificates evidencing the existence and amounts of such insurance
with loss payable clauses satisfactory to Landlord. No policy shall be
cancelable or subject to reduction of coverage except after ten (10)
days' prior written notice to Landlord
9
<PAGE>
17. SERVICES AND UTILITIES. Provided that Tenant is not in default
hereunder, Landlord agrees to furnish to the Premises during reasonable
hours of generally recognized business days, to be determined by
Landlord at his sole discretion, and subject to the rules and
regulations of the Building of which the premises are a part,
electricity for normal lighting and fractional horsepower office
machines, heat and air conditioning required in Landlord's judgment for
the comfortable use and occupation of the Premises, and janitorial
service. Landlord shall also maintain and keep lighted the common
stairs, common entries and toilet rooms in the Building of which the
Premises are a part. Landlord shall not be liable for, and Tenant shall
not be entitled to, any reduction of rental by reason of Landlord's
failure to furnish any of the foregoing when such failure is caused by
accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character, or by any other cause
similar or dissimilar, beyond the reasonable control of Landlord.
Landlord shall not be liable under any circumstances for loss of or
injury to property, however occurring, through or in connection with or
incidental to furnish any of the foregoing. Wherever heat generation
machines or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system,
Landlord reserves the right to install supplementary air conditioning
units in the Premises and the cost thereof, including, the cost of
installation and the cost of operation and maintenance thereof shall be
paid by Tenant to Landlord upon demand by Landlord.
Tenant will not, without written consent of Landlord, use any apparatus
or device in the Premises, including, but without limitation thereto,
electronic data processing machines, punch card machines, and machines
using the excess of 120 volts, which will in any way increase the
amount of electricity usually furnished or supplied for the use of the
Premises as general office space; nor connection with electric current
except through existing electrical outlets in the Premises, any
apparatus or device, for the purpose of using electric current. If
Tenant shall require water or electric current in excess of that
usually furnished or supplied for the use of the Premises as general
office space, Tenant shall first procure the written consent of
Landlord, which Landlord may refuse, to the use thereof and Landlord
may cause a water meter or electrical current meter to be installed in
the Premises, so as to measure the amount of water and electric current
consumed for any such use. The cost of any such meters and of
installation, maintenance and repair thereof, shall be paid for by the
Tenant and Tenant agrees to pay to Landlord promptly upon demand
therefore by Landlord for all such water and electric current consumed
as shown by said meters, at the rates charged for such services by the
local public utility furnishing the same, plus any additional expense
incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, such excess cost for
such water and electric current will be established by an estimate made
by a utility company or electrical engineer.
18. PROPERTY TAXES. Tenant shall pay, or cause to be paid, before
delinquency, any and all taxes levied or assessed and which become
payable during the term hereof upon all Tenant's leasehold
improvements, equipment, furniture, fixtures and personal property
located in the Premises; except that which has been paid for by
Landlord, and is the standard of the Building. In the event any or all
of the Tenant's leasehold improvement equipment,
10
<PAGE>
furniture, fixtures and personal property shall be assessed and taxed
with the Building, Tenant shall pay to Landlord its share of such taxes
within ten (10) days after delivery to Tenant by Landlord of a
statement in writing setting forth the amount of such taxes applicable
to Tenant's property.
19. RULES AND REGULATIONS. Tenant shall faithfully observe and comply with
the rules and regulations that Landlord shall from time to time
promulgate. Landlord reserves the right from time to time to make all
reasonable modifications to said rules. The additions and modifications
to those rules shall be binding upon Tenant upon delivery of a copy of
them to Tenant. Landlord shall not be responsible to Tenant for the
non-performance of any said rules by any other Tenants or occupants.
20. HOLDING OVER. If Tenant remains in possession of the Premises or any
part thereof after the expiration of the term hereof, with the express
written consent of Landlord, such occupancy shall be a tenancy from
month to month at a rental in the amount of the last monthly rental,
plus all other charges payable hereunder, and upon all the terms hereof
applicable to a month to month tenancy.
21. ENTRY BY LANDLORD. Landlord reserves and shall at any and all times
have the right to enter the Premises, inspect the same, supply
janitorial service and any other service to be provided by Landlord to
Tenant hereunder, to submit said Premises to prospective purchases or
Tenants, to post notices of non-responsibility, and to alter, improve
or repair the Premises and any portion of the Building of which the
Premises are a part that Landlord may deem necessary or desirable,
without abatement of rent and may for that purpose erect scaffolding
and other necessary structures where reasonably required by the
character of the work to be performed, always providing that the
entrance to the Premise shall not be blocked thereby; and further
providing that the business of the Tenant shall not be interfered with
unreasonably. Tenant hereby waives any claim for damages or for any
injury or inconvenience to or interference with Tenant's business, any
loss of occupancy or quiet enjoyment of the Premises, and any other
loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of
the doors in, upon and about the Premises, excluding Tenant's vaults,
safes and files, and Landlord shall have the right to use any and all
means which Landlord may deem proper to open said doors in any
emergency, in order to obtain entry to the Premises without liability
to Tenant except for any failure to exercise due care for Tenants
property. Any entry to the Premises obtained by Landlord by any of said
means, or otherwise shall not under any circumstances be construed or
deemed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction of Tenant from the Premises or any portion
thereof.
22. CASUALTY LOSS; RECONSTRUCTION. In the event the Premises or the
Building of which the Premises are a part are damaged by fire or other
perils covered by extended coverage insurance, Landlord agrees to
forthwith repair the same; and this lease shall remain in full force
and effect, except that the Tenant shall be entitled to a proportionate
reduction of the rent while such repairs are being made, such
proportionate reduction to be based upon
11
<PAGE>
the extent to which the making of such repairs shall materially
interfere with the business carried on by the Tenant in the Premise. If
the damage is due to the fault or neglect of Tenant or its employees,
there shall be no abatement or rent.
In the event the Premises or the Building of which the Premises are a
part are damaged as a result of any cause other than the perils covered
by fire and extended coverage insurance, then Landlord shall forthwith
repair the same, provided the extent of the destruction be less than
ten percent (10%) of the then full replacement cost of the Premises or
the Building of which the Premises are a part. In the event the
destruction of the Premises or the Building is to an extent greater
than ten percent (10%) of the full replacement cost, then Landlord
shall have the option; (1) to repair or restore such damage, this Lease
continuing in full force and effect, but the rent to be proportionately
reduced as hereinabove in this Article provided; or (2) give notice to
Tenant at any time within sixty (60) days after such damage terminating
this Lease as of the date specified in such notice, which date shall be
no less than thirty (30) and no more than sixty (60) days after the
giving of such notice. In the event of giving such notice, this Lease
shall expire and all interest of the Tenant in the Premises shall
terminate on the date so specified in such notice and the Rent, reduced
by a proportionate amount, based upon the extent, if any, to which such
damage materially interfered with the business carried on by the Tenant
in the Premises, shall be paid up to date of said termination.
Landlord or its agents shall not be liable for any damage to property
entrusted to employees of the Building, nor for loss or damage to any
property by theft or otherwise, nor for any injury to or damage to
persons or property resulting from fire, explosion, falling plaster,
steam, gas, electricity, water or rain which may leak from any part of
the Building or from the pipes, appliances or plumbing works therein or
from the roof, street or sub-surface, or from any other place resulting
from dampness or any other cause whatsoever, unless caused by or due to
the negligence of Landlord, its agents, servants or employees. Landlord
or its agents shall not be liable for interference with the light or
other incorporeal hereditaments, loss of business by Tenant, nor shall
Landlord be liable for any latent defect in the Premises or in the
Building. Tenant shall give prompt notice to Landlord in case of fire
or accidents in the Premises or in the Building or of defects therein
or in the fixtures or equipment.
Landlord shall not be required to repair any injury or damage by fire
or other cause, or to make any repairs or replacements of any panels,
decoration, office fixtures, railings, floor covering, partitions, or
any other property installed in the Premises by Tenant. The Tenant
shall not be entitled to any compensation or damages from Landlord for
loss of the use of the whole or any part of the Premises, Tenant's
personal property or any inconvenience or annoyance occasioned by such
damage, repair, reconstruction or restoration.
23. DEFAULT. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
A. The vacating or abandonment of the Premises by Tenant;
12
<PAGE>
B. The failure by Tenant to make any payment of rent or any other
payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of ten
(10) days after written notice thereof by Landlord by Tenant;
C. The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be
observed or performed by the Tenant, other than described in
Article 22.B. above, where such failure shall continue for a
period of thirty (30) days after written notice thereof by
Landlord to Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are
reasonably required for its cure, then Tenant shall not be
deemed to be in default if Tenant commences such cure within
said thirty (30) day period and thereafter diligently
prosecutes such cure to completion; or
D. The making by Tenant of any general assignment or general
arrangement for the benefit of creditors; or the filing by or
against Tenant of a petition to have Tenant adjudged a
bankrupt, or a petition or reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within
sixty (60) days); or the appointment of a trustee or a
receiver to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within
thirty (30) days; or the attachment, execution or other
judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty (30) days.
24. REMEDIES UPON DEFAULT. In the event of any such material default or
breach by Tenant, Landlord may, at its sole discretion and at any time
thereafter with or without notice or demand and without limiting
Landlord in the exercise of a right or remedy which Landlord may have
by reason of such default or breach:
A. Terminate Tenant's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises
to Landlord. In such event Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason
of Tenant's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting,
including necessary renovation and alteration of the Premises,
reasonable attorneys' fees, any real estate commission
actually paid.
Upon recovery of the Leased Premises, Landlord may, at its
sole discretion, use its best efforts to relet the Leased
Premises at a comparable or market rent thereby mitigating
damages hereunder.
Unpaid installments of rent or other sums shall bear interest
from the date due at the rate of ten (10%) percent per annum.
13
<PAGE>
B. Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant shall
have abandoned the Premises. In such event Landlord shall be
entitled to enforce all of Landlord's rights and remedies
under this Lease, including the right to recover the rent as
it becomes due hereunder.
C. Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decision of the State in which the
Premises are located.
D. Upon the occurrence of any Event of Default by Tenant,
Landlord may accelerate all rent and additional rent due for
the balance of the term of this Lease and declare the same to
be immediately due and payable. In determining the amount of
any future payments due to Lessor because of increases in
Operating Expenses and Total Real Estate taxes, Lessor may
make such determination based upon the amount of Operating
Expenses and total Real Estate taxes for the full year
immediately preceding default by Tenant.
25. FORCE MAJEURE. In the event that either party is unable to perform any
of its obligations under this Lease because a force majeure event or an
Act of God, the party who has been so affected shall immediately give
notice to the other party and shall do everything possible to meet the
obligations under this Lease or resume performance. If the period of
non-performance exceeds 30 days from receipt of such notice, the party
whose ability to perform has not been so affected may by giving written
notice, terminate this Lease.
26. EMINENT DOMAIN. If all or substantially all of the Building, the Common
Areas or the Leased Premises are temporarily or permanently taken by
power of eminent domain or condemnation, Landlord shall notify Tenant
and this Lease shall terminate at the option of Landlord or Tenant as
of the date of such taking. If part of the Building, the Common Areas
or the Leased Premises is taken and the parties do not exercise the
option to terminate this Lease, Rent shall abate proportionately from
the date of such taking and all repairs necessary to restore the
Building, the Common Areas or the Leased Premises as nearly as possible
to its original improved condition shall be:
A. commenced within 30 days after the occurrence of such damage;
B. performed in a diligent and workmanlike manner with materials
of at least the same quality utilized originally in the
construction of the Building;
C. completed by Landlord, at Landlord's cost, within a reasonable
time not to exceed 60 days and without an unreasonable
interference to Tenant's normal business operations.
27. ESTOPPEL CERTIFICATE. As requested by Landlord, Tenant shall, within
ten (10) days of Landlord's request, execute and deliver to Landlord a
written statement certifying:
14
<PAGE>
A. the Commencement Date of this Lease;
B. the fact that this Lease is unmodified and in full force and
effect (or, if there have been modifications hereto, that the
Lease is in full force and effect and stating the date and
nature of such modifications);
C. the date to which the Rent under this Lease has been paid;
D. that there have been no current defaults under this Lease by
either Landlord or Tenant except as specified in Tenant's
statement.
Any such statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the real property of which the
Premises are a part.
28. PARKING. Tenant shall have the right to use in common with other
Tenants or occupants of the Building the parking facilities of the
Building, if any subject to the monthly rates, rules and regulations,
and any other charges of Landlord for such parking facilities which may
be established or altered by Landlord at any time or from time to time
during the term hereof.
29. AUTHORITY OF PARTIES. Corporations. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation
represents and warrants that he is duly authorized to execute and
deliver this Lease on behalf of said corporation, in accordance with a
duly adopted resolution of the board of directors of said corporation
or in accordance with the by-laws of said corporation, and that this
Lease is binding upon said corporation in accordance with its terms.
Limited Partnerships. If the Landlord herein is a limited partnership,
it is understood and agreed that any claims by Tenant on Landlord shall
be limited to the assets of the limited partnership, and furthermore,
Tenant expressly waives any and all rights to proceed against the
individual partners or the officers, directors or shareholders of any
corporate partner, except to the extent of their interest in said
partnership.
30. PLATS AND RIDERS. Clauses, plats and riders, if any, signed by the
Landlord and the Tenant and endorsed on or affixed to this Lease are a
part hereof.
31. WAIVER. The waiver by Landlord of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term,
covenant or condition on any subsequent breach of the same or any other
term, covenant or condition herein contained. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this
Lease, other than the failure of the Tenant to pay the particular
rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of the acceptance of such rent.
15
<PAGE>
32. NOTICES. All notices and demands which may or are to be required or
permitted to be given by either party to the other hereunder shall be
in writing. All notices and demands by the Landlord to the Tenant shall
be sent by United States Mail, postage prepaid, addressed to the
Landlord at the office of the Building or to such other person or place
as the Landlord may from time to time designate in a notice to the
Tenant.
33. MARGINAL HEADINGS. The marginal headings and Article titles to the
Article of this lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
34. TIME. Time is of the essence of this Lease and each and all of its
provisions in which performance is a factor.
35. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained,
subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties
hereto.
36. RECORDATION. Neither Landlord nor Tenant shall record this Lease or a
short form memorandum hereof without the prior written consent of the
other party.
37. QUIET POSSESSION. Upon Tenant paying the rent reserved hereunder and
observing and performing all the covenants, conditions and provisions
on Tenant's part to be observed and performed hereunder, Tenant shall
have quiet possession of the Premises for the entire term hereof,
subject to all the provisions of this Lease.
38. LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent or other sums due hereunder will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges
which may be imposed upon Landlord by terms of any mortgage or trust
deed covering the Premises. Accordingly if any installment of rent or
of a sum due from Tenant shall not be received by Landlord or
Landlord's designee within ten (10) days after written notice that said
amount is past due, then Tenant shall pay to Landlord a late charge
equal to ten (10%) percent of such overdue amount. The parties hereby
agree that such late charges represent a fair and reasonable estimate
of the cost that Landlord will incur by reason of the late payment by
Tenant. Acceptance of such late charges by the Landlord shall in no
event constitute a waiver of Tenant's default with respect to such
overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
39. PRIOR AGREEMENTS. This Lease contains all of the agreements of the
parties hereto with respect to any matter covered or mentioned in this
lease, and no prior agreements or understanding pertaining to any such
matters shall be effective for any purpose. No provision of this Lease
may be amended or added to except by an agreement in writing
16
<PAGE>
signed by the parties hereto or their respective successors in
interest. This Lease shall not be effective or binding on any party
until fully executed by both parties hereto.
40. ATTORNEYS' FEES. In the event of any action or proceeding brought by
either party against the other under this Lease the prevailing party
shall be entitled to recover all costs and expenses including the fees
of its attorneys in such action or proceeding in such amount as the
court may adjudge reasonable as attorneys' fees.
41. SALE OF PREMISES BY LANDLORD. In the event of any sale of the Building,
Landlord shall be and is hereby entirely freed and relieved of all
liability under any and all of its covenants and obligations contained
in or derived from this Lease arising out of any act, occurrence or
omission occurring after the consummation of such sale; and the
purchaser, at such sale or any subsequent sale of the Premises shall be
deemed, without any further agreement between the parties or their
successors in interest or between the parties and any such purchaser,
to have assumed and agreed to carry out any and all of the covenants
and obligations of the Landlord under this Lease.
42. SUBORDINATION, ATTORNMENT. Upon request of the Landlord, Tenant will in
writing subordinate its rights hereunder to the lien of any first
mortgage, or first deed of trust to any bank, insurance company or
other lending institution, now or hereafter in force against the land
and Building of which the Premises are a part, and upon any building
hereafter placed upon the land of which the Premises are a part, and to
all advances made or hereafter to be made upon the security thereof.
In the event any proceedings are brought for foreclosure, or in the
event of the exercise of the power of sale under any mortgage or deed
of trust made by the Landlord covering the Premises, the Tenant shall
attorn to the purchaser upon any such foreclosure or sale and recognize
such purchaser as the Landlord under this Lease.
The provisions of this Article to the contrary notwithstanding, and so
long as Tenant is not in default hereunder, this lease shall remain in
full force and effect for the full term hereof.
43. NAME. Tenant shall not use the name of the Building or the development
in which the Building is situated for any purpose other than as an
address of the business to be conducted by the Tenant in the Premises.
44. SEVERABILITY. Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate
any other provision hereof and such other provision shall remain in
full force and effect.
45. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
17
<PAGE>
46. CHOICE OF LAW. This Lease shall be governed by the laws of the State in
which the Premises are located.
47. BROKERS. Tenant warrants that it has had no dealings with any real
estate broker or agents in connection with the negotiation of this
Lease excepting only CB Commercial and Lubarsky Group and it knows of
other real estate broker or agent who is entitled to a commission in
connection with this Lease. Landlord shall be solely liable for any and
all brokerage charges or fees which become payable as a result of this
agreement and Landlord will indemnify and hold Tenant harmless from and
against any claims, suits or demands for such brokers fees or charges.
48. BINDING EFFECT. The covenants and promises in this Lease shall inure to
the benefit of the permitted successors and assigns of the parties and
such permitted successors or assigns shall be bound by such covenants
and promises.
49. GENDER; NUMBER. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in masculine
gender include the feminine and neuter. If there be more than one
Tenant, the obligations hereunder imposed shall be joint and several.
50. EXECUTION BY BOTH LANDLORD AND TENANT. The submission by Landlord of
this document to Tenant for examination or signature by Tenant does not
constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant.
IN WITNESS WHEREOF the parties have caused this Lease to be executed and do
hereby warrant and represent that their respective signatories, whose signatures
appear below, have been and are on the date indicated below duly authorized by
all necessary and appropriate action to execute this Lease and bind the parties
hereto.
VIGA Technologies Corporation AIRPARK ASSOCIATES
- ------------------------------------ ------------------
(Tenant) (Landlord)
By: By:
-------------------------------------- -----------------------------
Typed Name: Thomas Murphy Typed Name: Michael J. Thrasher
------------------------------ ---------------------
Typed Title: Chief Executive Officer Typed Title: Vice President
------------------------------ ---------------------
Date: Sept. 7, 1995 Date: 9/14/95
------------------------------------ ---------------------------
18
<PAGE>
Addendum #1
To the lease dated September 5, 1995, by and between AIRPARK ASSOCIATES
("Landlord") and VIGA Technologies Corporation ("Tenant") for approximately
6,359 rentable square feet located on the second floor of the office building
(the "Building") located at 1601 Randolph SE, Albuquerque, New Mexico. The
following is added to and is considered a part of the lease.
1. PREMISES: Landlord does hereby lease to Tenant Suite 210S ("Premises").
2. LEASE TERM: The initial lease term is for six months with an option to extend
the lease for a three (3) year ("Expansion Option") term provided Tenant will
notify Landlord in writing within sixty (60) days of the end of the initial term
of their intention to extend. This option to extend is contingent upon the
tenant in Suite 220S not exercising their first right of refusal for a portion
of Suite 210S.
3. RENT: The rental rates for the six month lease term are:
$12.00/Rentable Square Feet - $6,623.96 per month
Extension Term Year Annual Rate Monthly Rental Amount
1 $11.50 $6,094.04
2 $12.00 $6,359.00
3 $12.50 $6,623.96
These are Full Service Lease Rates.
4. TENANT IMPROVEMENTS: Tenant will accept the Premises in "as-is" condition for
the Initial Term. If Tenant exercises the Expansion Option, Landlord agrees to
provide $3.00 per Rentable Square Foot for Tenant Improvements to be made at the
time of the three year extension. The Tenant Improvements will be amortized over
the extension term at 9% annual interest rate and added to the monthly rental
amount.
5. COVERED PARKING: Two (2) covered parking spaces shall be included as a part
of this lease with no charge to Tenant. Tenant's company name shall be
designated on each parking space.
6. SIGNAGE: In the event that Tenant exercises the Expansion Option, Landlord
agrees to provide monument signage for Tenant, at Landlord's expense.
7. TENANT'S EQUIPMENT: It is understood that Tenant is leasing office equipment
for the Premises and will provide Landlord with a list of the inventory of said
equipment. In the event
<PAGE>
Tenant defaults on this Lease obligation, Landlord will provide access to the
equipment leasing company or financing entity to recover the leased equipment.
8. NOTICES: All notices to the Landlord shall be delivered c/o Cauwells &
Associates, 1116 Pennsylvania NE, Albuquerque, New Mexico 87110 or such other
property management entity as Landlord shall appoint.
Agreed to this ________ of September, 1995 by:
Landlord Tenant
Airpark Investors VIGA Technologies Corporation
By: By:
--------------------------- ----------------------------
Thomas Murphy
Its: Its: Chief Executive Officer
--------------------------- ----------------------------
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned, VIGA TECHNOLOGIES
CORPORATION (the "Assignor") , hereby assigns, sets over, transfers, conveys and
grants unto MUSE TECHNOLOGIES INC. (the "Assignee") , and its designees,
successors and assigns, all of the Assignor's right, title and interest as
tenant in, to and under the Lease, as defined below, TO HAVE AND TO HOLD unto
Assignee in accordance with and subject to the terms and provisions of the
Lease. For purposes hereof, "Lease" shall mean the Lease dated September 5, 1995
relating to certain premises located at 1601 Randolph SE, Albuquerque, New
Mexico.
Assignor represents and warrants that it has full right and
power to make this Assignment; it owns the interests and assets assigned
hereunder (the "Interests") free and clear of liens, claims, encumbrances and
defects, and the Interests have not been previously assigned, pledged or
hypothecated.
This Assignment, without further act or notice by Assignee,
shall take effect upon consent of the landlord.
Assignee hereby assumes and agrees to perform all of the
duties and obligations of Assignor under the Lease.
IN WITNESS WHEREOF, Assignor has made this Assignment as of
the 30th day of November, 1995.
ASSIGNOR:
VIGA TECHNOLOGIES CORPORATION
By:________________________________
Thomas E. Murphy
President
1
<PAGE>
ASSIGNEE:
MUSE TECHNOLOGIES INC.
By:_______________________________
President
Ratified and Confirmed:
AIRPARK ASSOCIATES
By:__________________________
General Partner
2
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
This FIRST AMENDMENT TO LEASE AGREEMENT is made this 4th day of January, 1996 by
and between AIRPARK ASSOCIATES ("Landlord") and VIGA Technologies Corporation
("Tenant") with reference to the following facts:
A. On September 5, 1995, Landlord and Tenant entered into a Lease Agreement
("Lease Agreement") pursuant to which Tenant leased from Landlord certain space
("the Premises") in the building located at 1601 Randolph SE, Albuquerque, New
Mexico ("the Building").
THEREFORE, for valuable consideration, Landlord and Tenant agree as follows:
1. LEASE TERM: The initial lease term shall be extended for three
and one-half (3 1/2) months. The expiration date
of March 14, 1996 shall be changed to June 30,
1996.
2. EXTENSION OPTION: The Tenant's right to extend the lease for an
additional three year term shall be applicable as
described in the Lease Addendum # 1, provided
Landlord receives written notice of Tenant's desire
to extend no later than April 30, 1996.
3. RENTAL: The rental rate will be $12.00 per Rentable Square
Foot through June 30, 1996.
4. OTHER CONDITIONS: The initial lease term shall not be extended beyond
June 30, 1996.
Except as modified herein, all of the terms and conditions of the Lease
Agreement shall remain in full force and effect and shall be fully applicable
throughout the Term of the Lease Agreement. No further modification of the Lease
Agreement shall be binding unless evidenced by an agreement in writing signed by
Landlord and Tenant.
THE PARTIES HERETO have executed this First Amendment as of the day and year
first written above.
LANDLORD TENANT
AIRPARK INVESTORS VIGA Technologies Corporation
- ----------------------------- -----------------------------
Michael J. Thrasher Thomas Murphy
Vice President President
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
This SECOND AMENDMENT TO LEASE AGREEMENT is made this 12th day of April, 1996 by
and between AIRPARK ASSOCIATES ("Landlord") and VIGA Technologies Corporation
("Tenant") with reference to the following facts:
A. On September 5, 1995, Landlord and Tenant entered into a Lease Agreement
("Lease Agreement") pursuant to which Tenant leased from Landlord certain space
(the "Premises") in the building located at 1601 Randolph SE, Albuquerque, New
Mexico ("the Building").
THEREFORE, for valuable consideration, Landlord and Tenant agree as follows:
1. LEASE TERM: The lease term shall be extended for three months.
The expiration date of June 30, 1996 shall be
changed to September 30, 1996.
2. LEASE RATE: The lease rate shall be $12.00 per rentable square
foot through September 30, 1996.
3. TENANT NAME: VIGA Technologies Corporation has changed its name
to MUSE Technologies, Inc.
Except as modified herein, all of the terms and conditions of the Lease
Agreement shall remain in full force and effect and shall be fully applicable
throughout the Term of the Lease Agreement. No further modification of the Lease
Agreement shall be binding unless evidenced by an agreement in writing signed by
Landlord and Tenant.
THE PARTIES HERETO have executed this Amendment as of the day and year first
written above.
LANDLORD TENANT
AIRPARK INVESTORS MUSE TECHNOLOGIES, INC.
- ---------------------------- ----------------------------
Michael J. Thrasher Thomas Murphy
Vice President President
<PAGE>
THIRD AMENDMENT TO LEASE AGREEMENT
This THIRD AMENDMENT TO LEASE AGREEMENT is made this 11th day of October, 1996
by and between AIRPARK ASSOCIATES ("Landlord") and MUSE Technologies Corporation
("Tenant") with reference to the following facts:
A. Landlord and Tenant entered into an Office Building Lease dated September 6,
1995, as supplemented by the Addendum #1 dated September 14, 1995 ("the
"Addendum") and as amended by the First Amendment to Lease dated January 4, 1996
and the Second Amendment to Lease dated April 12, 1996 (collectively, the
"Lease") pursuant to which Tenant leased from Landlord Suite 210S (the
"Premises") in the building located at 1601 Randolph SE, Albuquerque, New Mexico
(the "Building"). Capitalized terms not otherwise defined herein are as defined
in the Lease.
THEREFORE, for valuable consideration, Landlord and Tenant agree as follows:
1. LEASE TERM: The lease term shall be extended for two months
through November 30, 1996 at the current rate.
2. EXPANSION: The Premises shall be expanded, effective December
1, 1996 by the addition of 2,428 rentable square
feet to 8,787 rentable square feet.
3. EXTENSION: The lease term for the expanded space will commence
December 1, 1996 for a three year term which will
expire November 30, 1999.
4. LEASE RATE: The lease rate for the extension will be the rates
shown in Addendum #1 which are:
Year Rate Monthly Rent
---- ---- ------------
1 $11.50 $8,420.88
2 $12.00 $8,787.00
3 $12.50 $9,153.13
5. TENANT
IMPROVEMENTS: Landlord agrees to provide $3.00 per rentable
square foot (the "Allowance") for Tenant
Improvements to be made to the space prior to
Tenant's Expansion. Exhibit "A" attached to this
Amendment and made a part hereof, is a list of
Tenant Improvements requested by Tenant. Any Tenant
Improvements that exceed the Allowance will be
amortized over the Extension at 9% annual interest
rate and added to
<PAGE>
the Monthly Rent. The total Tenant Improvement
Allowance is $26,361.00.
6. NO OTHER CHANGES: Except as revised by this Third Amendment, the
Lease remains unchanged, in full force and effect.
LANDLORD:
AIRPARK INVESTORS
-----------------------------
Michael J. Thrasher
President
TENANT:
MUSE TECHNOLOGIES CORPORATION
-----------------------------
Thomas Murphy
President
<PAGE>
EXHIBIT A
1. Building signage
2. Realign front entry to suite so that there is only one front door
3. Remove a portion of corridor wall adjacent to suite entrance to create
access into former K-Bob space
4. Remove wall that blocks corridor 33 & corridor 34
5. Remove counter in office 03
6. Remove south wall and door of office 03
7. Raise ceiling in conference room approximately 2 ft. throughout
8. Install one 120V outlet on east and west wall of electrical room 19
9. Relocate 208V outlet currently in computer room 17 onto south wall of
electrical room 19
10. Create additional air flow in computer room 17 & electrical room 19
11. Rewire light fixture in corridor next to conference room so that it is on
same circuit as other corridor light fixture
12. Remove exit sign from corridor going to conference room
13. Refinish front entry door to suite
14. Remove all anchors adhering to all office, room, and hallway walls
15. Patch all intrusions and holes in hallway and office walls
16. Paint all rooms and hallway corridors except for office 31 and storage room
22
17. Clean carpet in former K-Bob space
<PAGE>
FOURTH AMENDMENT TO LEASE AGREEMENT
This FOURTH AMENDMENT TO LEASE AGREEMENT is made this 14th day of August, 1997
by and between AIRPARK ASSOCIATES ("Landlord") and MUSE Technologies Corporation
("Tenant") with reference to the following facts:
Landlord and Tenant entered into a Lease Agreement dated September 6,
1995, as supplemented by the Addendum #1 dated September 14, 1995 and as amended
by the First Amendment to Lease dated January 4, 1996 and the Second Amendment
to Lease dated April 12, 1996 and the Third Amendment to Lease dated October 11,
1996 (collectively, the "Lease") pursuant to which Tenant leased from Landlord
Suite 210S (the "Premises") in the building located at 1601 Randolph SE,
Albuquerque, New Mexico (the "Building"). The parties desire to amend the Lease
as set forth below. Capitalized terms not otherwise defined herein are as
defined in the Lease.
THEREFORE, for valuable consideration, Landlord and Tenant agree as follows:
1. OPERATING EXPENSE
PASS-THROUGH: Beginning with the operating cost pass-through
calculations (the "CAM") under the Lease for the 1997
calendar year, Landlord will apply an automatic gross
up of the electric, janitorial and management fee
costs to reflect a 90% minimum building occupancy. If
the building is above 90% occupancy, the CAM will be
calculated using actual costs.
2. OTHER CONDITIONS
Except as revised by this Fourth Amendment, the Lease
remains unchanged, in full force and effect.
THE PARTIES HERETO have executed this Fourth Amendment as of the day and year
first written above.
LANDLORD TENANT
AIRPARK ASSOCIATES MUSE Technologies
Corporation
/s/ Michael J. Thrasher /s/ Thomas E. Murphy
- ------------------------ --------------------------
OMEX Realty, Inc.
Michael J. Thrasher By: Thomas E. Murphy
Vice President Its: Executive Vice President
<PAGE>
Exhibit 10.3
MUSE TECHNOLOGIES INC.
1995 STOCK OPTION PLAN
1. Purpose.
The purposes of this 1995 Stock Option Plan (the "Plan") are to induce
certain individuals to remain in the employ of, or to continue to serve as
directors of or as independent consultants to, Muse Technologies Inc. (the
"Company") and its future subsidiary corporations (each a "Subsidiary"), as
defined in section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code"), to attract new individuals to enter into such employment and service
and to encourage such individuals to secure or increase on reasonable terms
their stock ownership in the Company. The Board of Directors of the Company (the
"Board") believes that the granting of stock options (the "Options") under the
Plan will promote continuity of management and increased incentive and personal
interest in the welfare of the Company and aid in securing its growth and
financial success. Options will be either (a) "incentive stock options" (which
term, when used herein, shall have the meaning ascribed thereto by the
provisions of section 422(b) of the Code) or (b) options which are not incentive
stock options ("non-incentive stock options"), as determined at the time of the
grant thereof by the Committee (the "Committee") referred to in Section 3(A)
hereof.
1
<PAGE>
2. Shares Subject to Plan.
Options may be granted to purchase up to 5,000,000 shares of common
stock, par value $0.01 per share (the "Common Stock"), of the Company. For
purposes of this Section 2, the number of shares purchased upon the exercise of
an Option shall be determined without giving effect to the use by a Participant
(as defined below) of the right set forth in Section 8(C) hereof to deliver
shares of Common Stock in payment of all or a portion of the option price or the
use by a Participant of the right set forth in Section 12(C) hereof to cause the
Company to withhold from the shares of Common Stock otherwise deliverable to him
upon the exercise of an Option shares of Common Stock in payment of all or a
portion of his withholding obligation arising from such exercise. If any Options
expire or terminate for any reason without having been exercised in full, new
Options may thereafter be granted to purchase the unpurchased shares subject to
such expired or terminated Options.
3. Administration.
(A) The Plan shall be administered by a Committee which shall consist
of two or more members of the Board, both or all of whom shall be "disinterested
persons" within the meaning of Rule 16b- 3(c)2)(i) promulgated under Section
16(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and both or
all of whom shall be "outside directors" within the contemplation of section
162(m)(4)(C)(i) of the Code. The Chief Executive Officer of the Company shall
also be a member of the Committee, ex-officio. The Committee shall be appointed
annually by the Board, which may at any time and from time to time remove any
members of the Committee, with or without cause, appoint additional members to
the Committee and fill vacancies, however caused, in the Committee. A majority
of the members of the Committee shall constitute a quorum. All determinations of
the Committee shall be made by a majority of its members present at a meeting
duly called and held except that the
2
<PAGE>
Committee may delegate to any one of its members the authority of the Committee
with respect to the grant of Options to a person who shall not be an officer
and/or director of the Company and who is not, and may not reasonably be
expected to become, a "covered employee" within the meaning of section 162(m)(3)
of the Code. Any decision or determination of the Committee reduced to writing
and signed by all of the members of the Committee (or by a member of the
Committee to whom authority has been delegated) shall be fully as effective as
if it had been made at a meeting duly called and held.
(B) Subject to the express provisions of the Plan, the Committee shall
have complete authority, in its discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the respective option agreements or certificates (which need
not be identical), to determine the individuals (each a "Participant") to whom
and the times and the prices at which Options shall be granted, the periods
during which each Option shall be exercisable, the number of shares of Common
Stock to be subject to each Option and whether such Option shall be an incentive
stock option or a non-incentive stock option and to make all other
determinations necessary or advisable for the administration of the Plan;
provided, however, that Outside Directors (as such term is defined in Section 4
hereof) who are members of the Committee shall only be granted Options in
accordance with the provisions of Section 4(B) hereof. In making such
determinations, the Committee may take into account the nature of the services
rendered by the respective employees, their present and potential contributions
to the success of the Company and the Subsidiaries and such other factors as the
Committee in its discretion shall deem relevant. The Committee's determination
on the matters referred to in this Section 3(B) shall be conclusive. Any dispute
or disagreement which may arise under or as a result of or with respect to any
Option shall be determined
3
<PAGE>
by the Committee, in its sole discretion, and any interpretations by the
Committee of the terms of any Option shall be final, binding and conclusive.
4. Eligibility.
(A) An Option may be granted only to (i) employees of the Company or a
Subsidiary; (ii) directors of the Company or a Subsidiary who are not employees
of the Company or a Subsidiary ("Outside Directors"); (iii) employees of a
corporation which has been acquired by the Company or a Subsidiary, whether by
way of exchange or purchase of stock, purchase of assets, merger or reverse
merger, or otherwise, who hold options with respect to the stock of such
corporation which the Company has agreed to assume; and (iv) independent
consultants who render services to the Company or a Subsidiary.
(B) On the first business day of October commencing in October, 199_,
each outside Director shall be granted an Option to purchase that number of
shares of Common Stock, provided, however that the number of shares subject to
an option granted to an Outside Director during the calendar year in which he or
she becomes an Outside Director shall be equal to ________ multiplied by a
fraction, the numerator of which shall be the number of regular meetings
remaining during such calendar year after his election as a director and the
denominator of which shall be _______.
5. Option Prices.
(A) Except as otherwise provided in Sections 5(C) and 17 hereof, the
initial per share option price of any option which is an incentive stock option
shall not be less than the fair market value of a share of Common Stock on the
date of grant; provided, however, that, in the case of a Participant who owns
(within the meaning of section 424(d) of the Code) more than 10% of the total
4
<PAGE>
combined voting power of the Common Stock at the time an Option which is an
incentive stock option is granted to him or her, the initial per share option
price shall not be less than 110% of the fair market value of a share of Common
Stock on the date of grant.
(B) Except as otherwise provided in Sections 5(C) and 17 hereof, the
initial per share option price of any Option which is a non-incentive stock
option shall not be less than 85% of the fair market value of a share of Common
Stock on the date of grant.
(C) The initial per share option price of any Option which is granted
to an Outside Director shall be equal to the fair market value of a share of
Common Stock on the date of grant.
(D) For all purposes of this Plan, the fair market value of a share of
Common Stock on any date, (i) if the Common Stock is then listed on a national
securities exchange or traded on the Nasdaq National Market System, shall be
equal to the closing sale price of a share of Common Stock; (ii) if there is no
sale of the Common Stock on such date, the average of the high and low prices
reported on such exchange or system at the close of trading on such date or, if
the Common Stock is then listed on the Nasdaq SmallCap Market, shall be equal to
the closing sale price of a share of Common Stock; (iii) if there is no sale of
the Common Stock on such date, the average of the bid and asked prices on such
system at the close of trading on such date; or (iv) if the shares of Common
Stock are not then listed on a national securities exchange or such system on
such date, the fair market value of a share of Common Stock on such date as
shall be determined in good faith by the Committee.
6. Option Term.
Options shall be granted for such term as the Committee shall
determine, not in excess of ten years from the date of the granting thereof,
provided, however, that, except as otherwise provided in Section 17 hereof, in
the case of a Participant who owns (within
5
<PAGE>
the meaning of section 424(d) of the Code) more than 10% of the total combined
voting power of the Common Stock at the time an Option which is an incentive
stock option is granted to him or her, the term with respect to such Option
shall not be in excess of five years from the date of the granting thereof, and
provided, further, however, that the term of an Option granted to an Outside
Director shall be ten years from the date of the granting thereof.
7. Limitation on Amount of Incentive Stock Options Granted.
(A) Except as otherwise provided in Section 17 hereof, the aggregate
fair market value of the shares of Common Stock for which any Participant may be
granted incentive stock options which are exercisable for the first time in any
calendar year (whether under the terms of the Plan or any other stock option
plan of the Company) shall not exceed $100,000.
(B) No Participant shall be granted Options during any calendar year to
purchase more than ______ shares of Common Stock.
8. Exercise of Options.
(A) Except as otherwise provided in Section 17 hereof and, in the case
of an Option granted to a person who shall not be an Outside Director, except as
otherwise determined by the Committee at the time of the grant thereof, a
Participant may (a) during the period commencing on the first anniversary of the
date of the granting of an Option to him or her and ending on the day preceding
the second anniversary of such date, exercise such Option with respect to
one-third of the shares granted thereby; (b) during the period commencing on
such second anniversary and ending on the day preceding the third anniversary of
the date of the granting of such Option, exercise such Option with respect to
two-thirds of the shares granted thereby, and (c) during the period commencing
on such third anniversary, exercise such Option with respect to all of the
shares granted thereby.
6
<PAGE>
(B) To the extent exercisable, an Option may be exercised either in
whole at any time or in part from time to time.
(C) An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of Common Stock
and payment to the Company of the amount of the option price for the number of
shares of Common Stock so specified; provided, however, that all or any portion
of such payment may be made in kind by the delivery of shares of Common Stock
having a fair market value on the date of delivery equal to the portion of the
option price so paid, provided, further, however, that, subject to the
requirements of Regulation T promulgated under the Exchange Act, the Committee
may implement procedures to allow a broker chosen by a Participant to make
payment of all or any portion of the option price payable upon the exercise of
an Option and receive, on behalf of such Participant, all or any portion of the
shares of Common Stock issuable upon such exercise.
(D) Except in the case of an Option granted to an Outside Director, the
Committee may, in its discretion, permit any Option to be exercised, in whole or
in part, prior to the time when it would otherwise be exercisable.
9. Transferability.
No Option shall be assignable or transferable except by will and/or by
the laws of descent and distribution and, during the life of any Participant,
each option granted to him or her may be exercised only by him or her.
10. Termination of Service.
(A) Except as otherwise determined by the Committee at the time of
grant thereof, in the event a Participant leaves the employ or service of the
Company and the Subsidiaries prior to his or her 65th birthday, whether
voluntarily or otherwise but other than by reason of his or her death or
"disability" (as such term is defined
7
<PAGE>
in section 22(e)(3) of the Code), each Option theretofore granted to him or her
shall, to the extent not theretofore exercised, terminate forthwith.
(B) In the event a Participant's employment or service with the Company
and the Subsidiaries terminates by reason of his or her death, each Option
theretofore granted to him or her shall become immediately exercisable in full
and shall terminate upon the earlier to occur of (a) the expiration of the
period of one year after the date of such Participant's death, and (b) the date
specified in such Option.
(C) In the event a Participant leaves the employ or service of the
Company and the Subsidiaries on or after his or her 65th birthday or by reason
of his or her disability, each Option theretofore granted to him or her shall
become immediately exercisable in full and shall terminate upon the earlier to
occur of (a) the expiration of the period of three months after the date of such
retirement or disability, and (b) the date specified in such Option.
11. Adjustment of Number of Shares.
(A) In the event that a dividend shall be declared upon Common Stock
payable in shares of Common Stock, the number of shares of Common Stock then
subject to any Option, the number of shares of Common Stock which may be
purchased upon the exercise of Options granted under the Plan but not yet
covered by an Option and the number of shares of Common Stock to be subject to
an Option to be issued to an Outside Director shall be adjusted by adding to
each share the number of shares which would be distributable thereon if such
shares had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend. In the event that the outstanding
shares of Common Stock shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company or of another
corporation,
8
<PAGE>
whether through reorganization, recapitalization, stock split-up, combination of
shares, sale of assets, merger or consolidation in which the Company is the
surviving corporation, then, there shall be substituted for each share of Common
Stock then subject to any Option, for each share of Common Stock which may be
purchased upon the exercise of Options granted under the Plan but not yet
covered by an Option and for each share of Common Stock to be subject to an
Option to be issued to an Outside Director, the number and kind of shares of
stock or other securities into which each outstanding share of Common Stock
shall be so changed or for which each such share shall be exchanged.
(B) In the event that there shall be any change, other than as
specified in Section 11(A) hereof, in the number or kind of outstanding shares
of Common Stock, or of any stock or other securities into which Common Stock
shall have been changed, or for which it shall have been exchanged, then, if the
Committee shall, in its sole discretion, determine that such change equitably
requires an adjustment in the number or kind of shares then subject to any
Option and the number or kind of shares available for issuance in accordance
with the provisions of the Plan but not yet covered by an Option, such
adjustment shall be made by the Committee and shall be effective and binding for
all purposes of the Plan and of each Option.
(C) In the case of any substitution or adjustment in accordance with
the provisions of this Section 11, the option price in each Option for each
share covered thereby prior to such substitution or adjustment shall be the
option price for all shares of stock or other securities which shall have been
substituted for such share or to which such share shall have been adjusted in
accordance with the provisions of this Section ii.
(D) No adjustment or substitution provided for in this Section 11 shall
require the Company to sell a fractional share under any Option.
9
<PAGE>
(E) In the event of the dissolution or liquidation of the Company, or a
merger, reorganization or consolidation in which the Company is not the
surviving corporation, the Board, in its discretion, may accelerate the
exercisability of each option and/or terminate the same within a reasonable time
thereafter.
12. Purchase for Investment, Withholding and Waivers.
(A) Unless the delivery of the shares upon the exercise of an Option by
a Participant shall be registered under the Securities Act of 1933, such
Participant shall, as a condition of the Company's obligation to deliver such
shares, be required to give a representation in writing that he or she is
acquiring such shares for his or her own account as an investment and not with a
view to, or for sale in connection with, the distribution of any thereof.
(B) In the event of the death of a Participant, an additional condition
of exercising any option shall be the delivery to the Company of such tax
waivers and other documents as the Committee shall determine.
(C) An additional condition of exercising any non-incentive stock
option shall be the entry by the Participant into such arrangements with the
Company with respect to withholding as the Committee shall determine, provided,
however, that such Participant may direct the Company to satisfy all or a
portion of such withholding obligation by withholding from the shares of Common
Stock issuable to him or her on such exercise shares of Common Stock having a
fair market value equal to the portion of the withholding obligation so
satisfied.
13. Declining Market Price.
Except in the case of an Option granted to an Outside Director, in the
event the fair market value of Common Stock declines below the option price set
forth in any Option, the Committee may, subject to the approval of the Board, at
any time, adjust, reduce, cancel
10
<PAGE>
and re-grant any unexercised Option or take any similar action it deems to be
for the benefit of the Participant in light of the declining fair market value
of Common Stock.
14. No Stockholder Status; No Restrictions
on Corporate Acts; No Employment Right.
(A) Neither any Participant nor his or her legal representatives,
legatees or distributees shall be or be deemed to be the holder of any share of
Common Stock covered by an option unless and until a certificate for such share
has been issued. Upon payment of the purchase price therefor, a share issued
upon exercise of an option shall be fully paid and non-assessable.
(B) Neither the existence of the Plan nor any Option shall in any way
affect the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock or the rights thereof,
or dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding
whether of a similar character or otherwise.
(C) Neither the existence of the Plan nor the grant of any option shall
require the Company or any Subsidiary to continue any Participant in the employ
or service of the Company or such Subsidiary.
15. Termination and Amendment of the Plan.
(A) The Board may at any time terminate the Plan or make such
modifications of the Plan as it shall deem advisable, provided, however, that
the Board may not, without further approval of the holders of the shares of
Common Stock, increase the number of shares of Common Stock as to which options
may be granted under the Plan
11
<PAGE>
(as adjusted in accordance with the provisions of Section 11 hereof), or change
the class of persons eligible to participate in the Plan, or change the manner
of determining the option prices, or extend the period during which an Option
may be granted or exercised. Except as otherwise provided in Section 16 hereof,
no termination or amendment of the -Plan may, without the consent of the
Participant to whom any Option shall theretofore have been granted, adversely
affect the rights of such Participant under such Option.
(B) The provisions of Section 4 (B) hereof may not be amended except by
the vote of the majority of the members of the Board and by the vote of the
majority of the members of the Board who are not Outside Directors, and the
provisions of said Section 4(B) shall not be amended more than once every six
months, other than to comport with changes in the Code, the Employee Retirement
Income Security Act of 1974 or the Rules and Regulations thereunder.
16. Expiration and Termination of the Plan.
The Plan shall terminate on November 1, 2005 or at such earlier time as
the Board may determine. Options may be granted under the Plan at any time and
from time to time prior to its termination. Any Option outstanding under the
Plan at the time of the termination of the Plan shall remain in effect until
such option shall have been exercised or shall have expired in accordance with
its terms.
17. Options Granted in Connection With Acquisitions.
In the event that the Committee determines that, in connection with the
acquisition by the Company or a Subsidiary of another corporation which will
become a Subsidiary or division of the Company (such corporation being hereafter
referred to as an "Acquired Subsidiary") , Options may be granted hereunder to
employees and other personnel of an Acquired Subsidiary in exchange
12
<PAGE>
for then outstanding options to purchase securities of the Acquired Subsidiary.
Such Options may be granted at such option prices, may be exercisable
immediately or at any time or times either in whole or in part, and may contain
such other provisions not inconsistent with the Plan, or the requirements set
forth in Section 15 hereof that certain amendments to the Plan be approved by
the stockholders of the Company, as the Committee, in its discretion, shall deem
appropriate at the time of the granting of such options.
13
<PAGE>
MUSE TECHNOLOGIES, INC.
MODIFICATIONS TO 1995 STOCK OPTION PLAN
RECITALS:
- ---------
A. At a meeting held on November 10, 1995, the Board of Directors of Muse
Technologies, Inc. ("Muse") adopted a Stock Option Plan ("Plan") and resolved
that 5,000,000 shares of Muse stock be allocated to the Plan.
B. The Plan contains a number of provisions necessary for compliance with
Section 16(b) of the Securities Exchange Act of 1934 ("1934 Act") and related
rules adopted by the Securities and, Exchange Commission ('SEC") which are not
applicable to Muse at the present time. Accordingly, it is desirable to provide
that the Plan shall be administered by a committee that does not meet the
requirements of Section 16(b) and that does not limit options granted to members
of the administering Plan committee to those provided by a recurring formula
provided in the Plan.
C. It is desirable to clarify that the permissible grantees of stock options
("Options') under the plan include service providers to Muse who are
corporations as well as individuals.
D. It is desirable to issue Options under the Plan to the stockholders of Muse
as of October 24, 1995, who have been providing services to Muse, with the
exception of those shareholders as of October 24, 1995, who were issued stock
because they were beneficiaries of the Nevada Virtual Reality Trust, a Nevada
business trust.
MODIFICATIONS
- -------------
The Plan is hereby modified pursuant to resolution of the Board of
Directors of Muse adopted at a meeting of the Board of Directors held on April
23, 1996, as follows:
1. The grantees of Options under the Plan may include any service provider to
Muse, including corporations and limited liability
<PAGE>
companies, and any designation in the Plan to "individuals' as the class to
which Options may be granted is expanded to include any entity providing
services to Muse, including corporations and limited liability companies.
2. The Plan shall be administered by the Executive Committee of the Board of
Directors of Muse, whose members are not required to be 'disinterested persons"
within the meaning of Rule 16b-3(c)(2)(i) promulgated under Section 16(b) of the
Securities Exchange Act of 1934.
3. Section 4(B) of the Plan is voided and deleted together with any reference
and provision of the Plan identifying with Section 4(B); including the proviso
in Section 3(B) that "Outside Directors" who are members of the committee
administering the Plan shall only be granted Options in accordance with the
provisions of the deleted Section 4(B); and furthermore including the referral
in Section 8(A) and 8(D) of the Plan to the case of an Option granted to a
person who shall not be an outside director.
4. The Executive Committee of the Board of Directors is initially directed (a)
to grant two million Options to the service providers in the amounts specified
to each service provider on Appendix A attached to and made a part of this
Modification; and (b) to the extent possible to qualify the Options as
"incentive stock options" qualifying under the provisions of Section 422(b) of
the Internal Revenue Code of 1986, as amended.
<PAGE>
Exhibit 10.4
MUSE TECHNOLOGIES, INC.
1996 STOCK OPTION PLAN
1. Purpose.
The purposes of this 1996 Stock Option Plan (the "Plan") are to induce
certain service providers to remain in the employ of, or to continue to serve as
directors of or as independent consultants to, Muse Technologies, Inc. (the
"Company") and its future subsidiary corporations (each a "Subsidiary"), as
defined in section 424(f) of the Internal Revenue Code of 1986, as amended (the
"Code"), to attract new service providers to enter into such employment and
service and to encourage such service providers to secure or increase on
reasonable terms their stock ownership in the Company. The Board of Directors of
the Company (the "Board") believes that the granting of stock options (the
"Options") under the Plan will promote continuity of management and increased
incentive and personal interest in the welfare of the Company and aid in
securing its growth and financial success. Options will be either (a) "incentive
stock options" (which term, when used herein, shall have the meaning ascribed
thereto by the provisions of section 422(b) of the Code) or (b) options which
<PAGE>
are not incentive stock options ("non-incentive stock options"), as determined
at the time of the grant thereof by the Board.
2. Shares Subject to Plan.
Options may be granted to purchase up to five million (5,000,000) shares of
common stock, par value $0.01 per share (the "Common Stock"), of the Company
after the 1,000 to 1 stock split. For purposes of this Section 2, the number of
shares purchased upon the exercise of an Option shall be determined without
giving effect to the use by a Participant (as defined below) of the right set
forth in Section 8(C) hereof to deliver shares of Common Stock in payment of all
or a portion of the option price or the use by a Participant of the right set
forth in Section 12(C) hereof to cause the Company to withhold from the shares
of Common Stock otherwise deliverable to him upon the exercise of an Option
shares of Common Stock in payment of all or a portion of his withholding
obligation arising from such exercise. If any Options expire or terminate for
any reason without having been exercised in full, new Options may thereafter be
granted to purchase the unpurchased shares subject to such expired or terminated
Options.
MUSE TECHNOLOGIES, INC.
Page 2 of 17
<PAGE>
3. Administration
(A) The Plan shall be administered by the Board.
(B) Subject to the express provisions of the Plan, the Board shall have
complete authority, in its discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the respective option agreements or certificates (which need
not be identical), to determine the service providers (each a "Participant") to
whom and the times and the prices at which Options shall be granted, the periods
during which each Option shall be exercisable, the number of shares of Common
Stock to be subject to each Option and whether such Option shall be an incentive
stock option or a non-incentive stock option and to make all other
determinations necessary or advisable for the administration of the Plan. In
making such determinations, the Board may take into account the nature of the
services rendered by the respective service providers, their present and
potential contributions to the success of the Company and the Subsidiaries and
such other factors as the Board in its discretion shall deem relevant. The
Board's determination on the matters referred to in this Section 3 shall be
conclusive. Any dispute or disagreement which may arise under or as a result of
or
MUSE TECHNOLOGIES, INC.
Page 3 of 17
<PAGE>
with respect to any Option shall be determined by the Board, in its sole
discretion, and any interpretations by the Board of the terms of any Option
shall be final, binding and conclusive.
4. Eligibility
An Option may be granted only to (i) employees of the Company or a
Subsidiary; (ii) directors of the Company or a Subsidiary who are not employees
of the Company or a Subsidiary ("Outside Directors"); (iii) employees of a
corporation which has been acquired by the Company or a Subsidiary, whether by
way of exchange or purchase of stock, purchase of assets, merger or reverse
merger, or otherwise, who hold options with respect to the stock of such
corporation which the Company has agreed to assume, and (iv) independent
consultants who render services to the Company or a Subsidiary.
5. Option Prices
(A) Except as otherwise provided in Sections 5 and 17 hereof, the initial
per share option price of any Option which is an incentive stock option shall
not be less than the fair market value of a share of Common Stock on the date of
grant; provided,
MUSE TECHNOLOGIES, INC.
Page 4 of 17
<PAGE>
however, that, in the case of a Participant who owns (within the meaning of
section 424(d) of the Code) more than 10% of the total combined voting power of
the Common Stock at the time an Option which is an incentive stock option is
granted to him or her, the initial per share option price shall not be less than
105% of the fair market value of a share of Common Stock on the date of grant.
(B) Except as otherwise provided in Sections 5 and 17 hereof, the initial
per share option price of any Option which is a non-incentive stock option shall
not be less than 85% of the fair market value of a share of Common Stock on the
date of grant.
(C) For all purposes of this Plan, the fair market value of a share of
Common Stock on any date, (i) if the Common Stock is then listed on a national
securities exchange or traded on the NASDAQ National Market System, shall be
equal to the closing sale price of a share of Common Stock; (ii) if there is no
sale of the Common Stock on such date, the average of the high and low prices
reported on such exchange or system at the close of trading on such date or, if
the Common Stock is then listed on the NASDAQ SmallCap Market, shall be equal to
the closing sale price of a share of Common Stock; (iii) if there is no sale of
the Common Stock on such date, the
MUSE TECHNOLOGIES, INC.
Page 5 of 17
<PAGE>
average of the bid and asked prices on such system at the close of trading on
such date; or (iv) if the shares of Common Stock are not then listed on a
national securities exchange or such system on such date, the fair market value
of a share of Common Stock on such date as shall be determined in good faith by
the Board.
6. Option Term.
Options shall be granted for such terms as the Board shall determine, not
in excess of ten years from the date of the granting thereof, provided, however,
that, except as otherwise provided in Section 17 hereof, in the case of a
Participant who owns (within the meaning of section 424(d) of the Code) more
than 10% of the total combined voting power of the Common Stock at the time an
option which is an incentive stock option is granted to him or her, the term
with respect to such Option shall not be in excess of five (5) years from the
date of the granting thereof.
7. Limitation on Amount of Incentive Stock Options Granted.
Except as otherwise provided in Section 17 hereof, the aggregate fair
market value of the shares of Common Stock for which any Participant may be
granted incentive stock options which are exercisable for the first time in any
calendar year
MUSE TECHNOLOGIES, INC.
Page 6 of 17
<PAGE>
(whether under the terms of the Plan or any other stock option plan of the
Company) shall not exceed $100,000.
8. Exercise of Options.
(A) Except as otherwise provided in Section 17 hereof, a Participant may
(a) during the time period commencing on the first anniversary date of the
granting of an Option to him or her and ending on the day preceding the second
anniversary of such date, exercise such Option with respect to one-third of the
shares granted thereby; (b) during the period commencing on such second
anniversary and ending on the day preceding the third anniversary of the date of
the granting of such Option, exercise such Option with respect to two-thirds of
the shares granted thereby; and (c) during the period commencing on such third
anniversary, exercise such Option with respect to all of the shares granted
thereby.
(B) To the extent exercisable, an Option may be exercised either in whole
at any time or in part from time to time.
(C) An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of Common Stock
and payment to the Company of the amount of the option price for the number of
shares
MUSE TECHNOLOGIES, INC.
Page 7 of 17
<PAGE>
of Common Stock so specified; provided, however, that all or any portion of such
payment may be made in kind by the delivery of shares of Common Stock having a
fair market value on the date of delivery equal to the portion of the option
price so paid, provided, further, however, that, subject to the requirements of
Regulation T promulgated under the Exchange Act, the Board may implement
procedures to allow a broker chosen by a Participant to make payment of all or
any portion of the option price payable upon the exercise of an Option and
receive, on behalf of such Participant, all or any portion of the shares of
Common Stock issuable upon such exercise.
(D) The Board may, in its discretion, permit any Option to be exercised,
in whole or in part, prior to the time when it would otherwise be exercisable.
9. Transferability.
No Option shall be assignable or transferable except by will and/or by the
laws of descent and distribution and, during the life of any Participant, each
Option granted to him or her may be exercised only by him or her.
MUSE TECHNOLOGIES, INC.
Page 8 of 17
<PAGE>
10. Termination of Service.
(A) Except as otherwise determined by the Board at the time of the grant
thereof, if a Participant leaves the employ or service of the Company and the
Subsidiaries when (a) voluntarily prior to his or her 65th birthday, but other
than by reason of his or her death or "disability" (as such term is defined in
section 22(e)(3) of the Code), or (b) involuntarily for cause, then in either
event each Option theretofore granted to him or her shall, to the extent not
theretofore exercised, terminate forthwith. For purposes hereof, "cause" shall
mean and be limited to a determination by two-thirds (2/3) of the members of the
Board present and entitled to vote thereon, that the Participant's acts or
omissions constitute fraud, wilful misconduct, gross negligence or criminal
conduct constituting a Class A misdemeanor or greater.
(B) Except as above provided or as otherwise determined by the Board at the
time of the grant thereof, in the event a Participant leaves the employ or
service of the Company and the Subsidiaries involuntarily prior to his or her
65th birthday, but other than by reason of his or her death or "disability" (as
such term is defined in section 22(e)(3) of the Code), each Option therefore
granted to him or her shall, to the
MUSE TECHNOLOGIES, INC.
Page 9 of 17
<PAGE>
extent not theretofore exercised, terminate thirty (30) days after the date the
Participant leaves the employ or service of the Company.
(C) In the event a Participant's employment or service with the Company and
the Subsidiaries terminated by reason of his or her death, each Option
theretofore granted to him or her shall become immediately exercisable in full
and shall be terminated upon the earlier to occur of (a) the expiration of the
period of one year after the date of such Participant's death, and (b) the date
specified in such Option.
(D) In the event a Participant leaves the employ or service of the Company
and the Subsidiaries on or after his or her 65th birthday or by reason of his or
her disability, each Option theretofore granted to him or her shall become
immediately exercisable in full and shall be terminated upon the earlier to
occur of (a) the expiration of the period of three months after the date of such
retirement or disability, and (b) the date specified in such Option.
11. Adjustment of Number of Shares.
(A) In the event that a dividend shall be declared upon Common Stock
payable in shares of Common Stock, the number of shares of Common Stock then
subject to any Option, the number of shares of Common Stock which may be
MUSE TECHNOLOGIES, INC.
Page 10 of 17
<PAGE>
purchased upon the exercise of Options granted under the Plan but not yet
covered by an Option and the number of shares of Common Stock to be subject to
an Option to be issued to an Outside Director shall be adjusted by adding to
each share the number of shares which would be distributable thereon if such
shares had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend. In the event that the outstanding
shares of Common Stock shall be changed into or exchanged for a different number
of kind of share of stock or other securities of the Company or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, sales of assets, merger or consolidation in which the
Company is the surviving corporation, then, there shall be substituted for each
share of Common Stock then subject to any Option, for each share of Common Stock
which may be purchased upon the exercise of Options granted under the Plan but
not yet covered by an Option and for each share of Common Stock to be subject to
an Option to be issued to an Outside Director, the number and kind of shares of
stock or other securities into which each outstanding share of Common Stock
shall be so changed or for which each share shall be exchanged.
MUSE TECHNOLOGIES, INC.
Page 11 of 17
<PAGE>
(B) In the event that there shall be any change, other than as specified in
Section 11(A) hereof, in the number or kind of outstanding shares of Common
Stock, or of any stock or other securities into which the Common Stock shall
have been changed, or for which it shall have been exchanged, then, if the Board
shall, in its sole discretion, determine that such change equitably requires an
adjustment in the number or kind of shares then subject to any Option and the
number or kind of shares available for issuance in accordance with the
provisions of the Plan but not yet covered by an Option, such adjustment shall
be made by the Board and shall be effective and binding for all purposes of the
Plan and each such Option.
(C) In the case of any substitution or adjustment in accordance with the
provisions of this Section 11, the option price in each such Option for each
share covered thereby prior to such substitution or adjustment shall be the
option price for all shares of stock or other securities which shall have been
substituted for such shares or to which such share shall have been adjusted in
accordance with the provisions of this Section 11.
(D) No adjustment or substitution provided for in this Section 11 shall
require the Company to sell a fractional share under any Option.
MUSE TECHNOLOGIES, INC.
Page 12 of 17
<PAGE>
(E) In the event of the dissolution or liquidation of the Company, or a
merger, reorganization or consolidation in which the Company is not the
surviving corporation, the Board, it its discretion, may accelerate the
exercisability of each Option and/or terminate the same within a reasonable time
thereafter.
12. Purchase for Investment, Withholding and Waivers.
(A) Unless the delivery of the shares upon the exercise of an Option by a
Participant shall be registered under the Securities Act of 1933, such
Participant shall, as a condition of the Company's obligation to deliver such
shares, be required to give a representation in writing that he or she is
acquiring such shares for his or her own account as an investment and not with a
view to, or for sale in connection with, the distribution of any thereof.
(B) In the event of the death of a Participant, an additional condition of
exercising any Option shall be the delivery to the Company of such tax waivers
and other documents as the Board shall determine.
(C) An additional condition of exercising any non-incentive stock option
shall be the entry by the Participant into such arrangements with the Company
with respect to withholding as the Board shall determine, provided, however,
that such
MUSE TECHNOLOGIES, INC.
Page 13 of 17
<PAGE>
Participant may direct the Company to satisfy all or a portion of such
withholding obligation by withholding from the shares of Common Stock issuable
to him or her on such exercise shares of Common Stock having a fair market value
equal to the portion of the withholding obligation so satisfied.
13. Declining Market Price.
In the event the fair market value of Common Stock declines below the
option price set forth in any Option, the Board may at any time adjust, reduce,
cancel and re-grant any unexercised Option or take any similar action it deems
to be for the benefit of the Participant in light of the declining fair market
value of Common Stock.
14. No Stockholder Status; No Restriction on Corporate Acts;
No Employment Right.
(A) Neither any Participant nor his or her legal representatives, legatees
or distributees shall be or be deemed to be the holder of any share of Common
Stock covered by an Option unless and until a certificate for such share has
been issued. Upon payment of the purchase price therefor, a share issued upon
exercise of an Option shall be fully paid and non-assessable.
MUSE TECHNOLOGIES, INC.
Page 14 of 17
<PAGE>
(B) Neither the existence of the Plan nor any Option shall in any way
affect the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock or the rights thereof,
or dissolution or liquidation of the Company, or any sale or transfer of all or
any part of its assets or business, or any other corporate act or proceeding
whether of a similar character or otherwise.
(C) Neither the existence of the Plan nor the grant of any Option shall
require the Company or any Subsidiary to continue any Participant in the employ
or service of the Company or such Subsidiary.
15. Termination and Amendment of the Plan.
The Board may at any time terminate the Plan or make such modifications of
the Plan as it shall deem advisable, provided, however, that the Board may not,
without further approval of the holders of the shares of Common Stock, increase
the number of shares of Common Stock as to which Options may be granted under
the Plan (as adjusted in accordance with the provisions of Section 11 hereof),
or change
MUSE TECHNOLOGIES, INC.
Page 15 of 17
<PAGE>
the class of persons eligible to participate in the Plan, or change the manner
of determining the option prices, or extend the period during which an Option
may be granted, or exercised. Except as otherwise provided in Section 16 hereof,
no termination or amendment of the Plan may, without the consent of the
Participant to whom any Option shall theretofore have been granted, adversely
affect the rights of such Participant under such Option.
16. Expiration and Termination of the Plan.
The Plan shall terminate on November 1, 2005 or at such earlier time as the
Board may determine. Options may be granted under the Plan at any time and from
time to time prior to its termination. Any Option outstanding under the Plan at
the time of the termination of the Plan shall remain in effect until such Option
shall have been exercise or shall have expired in accordance with its terms.
17. Options Granted in Connection with Acquisitions.
In the event that the Board determines that, in connection with the
acquisition by the Company or a Subsidiary of another corporation which will
become a Subsidiary or division of the Company (such corporation being hereafter
referred to
MUSE TECHNOLOGIES, INC.
Page 16 of 17
<PAGE>
as an "Acquired Subsidiary"). Options may be granted hereunder to employees and
other personnel of an Acquired Subsidiary in exchange for then outstanding
options to purchase securities of the Acquired Subsidiary. Such Options may be
granted at such option prices, may be exercisable immediately or at any time or
times wither in whole or in part, and may contain such other provisions not
inconsistent with the Plan, or the requirements set forth in Section 15 hereof
that certain amendments to the Plan be approved by the stockholders of the
Company, as the Board, in its discretion, shall deem appropriate at the time of
the granting of such Options.
MUSE TECHNOLOGIES, INC.
Page 17 of 17
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement on Form SB-2 of
our report dated November 7, 1997 (except notes 1, 3, 7, 9, and 14, as to
which the date is July 15, 1998) relating to the financial statements of MuSE
Technologies, Inc., as of September 30, 1997 and 1996 and for the year ended
September 30, 1997 and for the period from October 24, 1995 (inception)
through September 30, 1996 and the reference to our firm under the caption
"Experts" in the accompanying Prospectus.
/s/ Feldman Sherb Ehrlich & Co., P.C.
----------------------------------------
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants
(Formerly Feldman Radin & Co., P.C.)
New York, New York
August 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1998
<PERIOD-START> OCT-01-1996 OCT-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 287,436 924,348
<SECURITIES> 0 0
<RECEIVABLES> 215,449 162,467
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 526,139 1,100,063
<PP&E> 1,440,179 1,465,959
<DEPRECIATION> 678,006 1,021,340
<TOTAL-ASSETS> 1,365,964 1,710,004
<CURRENT-LIABILITIES> 1,405,926 936,202
<BONDS> 17,740 0
0 0
0 0
<COMMON> 109,174 116,458
<OTHER-SE> (166,876) 657,344
<TOTAL-LIABILITY-AND-EQUITY> 1,365,964 1,710,004
<SALES> 755,705 1,761,251
<TOTAL-REVENUES> 755,705 1,761,251
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,636,885 2,374,420
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 167,922 554,876
<INCOME-PRETAX> (2,049,102) (2,116,400)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,049,102) (2,116,400)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,049,102) (2,116,400)
<EPS-PRIMARY> (0.28) (.29)
<EPS-DILUTED> (0.28) (.29)
</TABLE>
